This is an interview from our quarterly, community-led publication, The Bundle. Download volume two, issue #1 now to hear from legal leaders at Klarna, Paddle, Omnipresent, and more.
I joined Form3, a fintech serving the banking space with payment technology, in May 2021. In September that same year, we raised $160m in our Series C round.
Form3 is my first role in-house. I was previously a corporate partner at a law firm, representing both companies and venture capitalists. I’ve also been in-house at a venture capital fund and so it was super interesting to see the transaction play out from the company side.
Investors leveraged existing documents, which shows the importance of getting your documents in good order
From a basic terms perspective, our Series C was pretty straightforward. Investors leveraged our existing documents, which shows the importance of getting your documents in good order at the seed or Series A stage.
Our main challenges were:
- In the legal due diligence
- Juggling the demands and concerns of our various stakeholders
Given the maturity of our company, our investors were particularly interested in areas such as compliance - specifically tax and regulation. At the time we had reached an inflection point - although we were no longer a startup, we were still growing into being a scaleup.
Our shareholder base is a mix of early seed investors, institutional investors and strategic investors or customers – all with different drivers and requirements. Having to manage stakeholder expectations was challenging - here’s what I learned from the experience.
Selling your risk 🙏
Our data room was already in place when I joined the business, which saved legal and the rest of the organisation a lot of time. A lot of companies fail to understand how much resource populating a data room and dealing with investor requests can take.
We also had a really strong understanding of our risk, and we knew how to sell this risk to investors. This was particularly important given our business.
This involved taking investors through the business at an early stage and having an open and honest discussion with them on the areas that needed their attention.
This allowed them to instruct their lawyers to focus on the issues that really mattered. This made the process more efficient and ensured that time and resource was spent in the right areas.
It was an interesting approach that has differed to my previous experiences, but had clear value for both the business and the investors.
The biggest challenge when it comes to engaging with internal and external stakeholders is finding the right balance of knowledge-sharing
Building executive-level trust 🤝
I was a member of the executive team, which made it easier to run the transaction. I also benefited from having worked with the executive team for the last five years, as the company’s external adviser.
This made it easier to lead on negotiations and get the round over the line without too much involvement from the C-suite.
The team running the investment mainly consisted of our CEO, CFO, CPO and legal. The CEO, CFO and CPO sold the dream. Legal then led the term sheet discussions with input from the CEO and CFO.
From then on, legal was in execution mode. The process ran smoothly because the organization trusted legal to push that deal through. It was also important as it provided different escalation points – with external counsel escalating to legal and then legal to the CEO.
This was especially important at a Series C level. Investments are a massive distraction from the day-to-day running of the business. Running the deal this way allowed the rest of the team to do their normal work.
Finding that comms balance 💬
The biggest challenge comes to engaging with internal and external stakeholders – particularly when you have 50+ signatories (plus their lawyers) to a deal. There is a fine balancing act on when to involve certain stakeholders and at what stage along the transaction.
Too much involvement (particularly at the early stages) slows down the process, with stakeholders inputting on documentation, negotiating with incoming investors, and legal having to keep track of different people at different stages – it is impossible to negotiate by committee.
On the other hand, it’s really important to engage with and be transparent with stakeholders and provide them with sufficient information, so they know exactly what is going on throughout this funding round.
Failure to do so can lead to disengagement and friction internally, or worse, a complete breakdown in trust which will be problematic for the company going forwards.
Finding the perfect balance is a challenge. This was the first time I had seen an investment through the eyes of an investee company.
For me, what was interesting and new was not so much the legal work or the investment process, but managing the shareholder and investor relationships. You’re generally insulated from this in private practice.
Whilst in private practice you are used to managing client and firm expectations, this was a really different experience that I valued during our funding round.
This is a chapter from our quarterly, community-led publication, The Bundle. Download volume two, issue #1 for the latest need-to-know insights, by and for scaleup lawyers.