{"id":186810,"date":"2024-03-26T23:59:30","date_gmt":"2024-03-26T23:59:30","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=186810"},"modified":"2025-11-12T12:53:52","modified_gmt":"2025-11-12T12:53:52","slug":"equity-financing-startup","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/startups\/equity-financing-startup\/","title":{"rendered":"Key Legal Issues With Equity Financing a Startup\u00a0"},"content":{"rendered":"\n

Equity financing involves external investors providing funds for your startup in exchange for a stake in your company. Capital raising rounds<\/a> tend to be competitive, and receiving an offer from a potential investor can be exciting. However, it is crucial to take a step back and carefully review your company\u2019s position and the terms of the investment agreement before accepting any funds. This article will discuss several legal issues involved with equity financing a new business. <\/p>\n\n\n\n

1. Equity Dilution <\/h2>\n\n\n\n

Equity dilution is one of the primary legal issues of equity financing. It refers to reducing existing shareholders\u2019 ownership in a company when issuing new shares. Dilution typically happens when a company raises additional capital by selling new shares to investors, such as venture capitalists or angel investors. <\/p>\n\n\n\n

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For example, you currently own 100% of your company and decide to issue shares in return for angel investment. The angel expects a 20% stake in return for their funding. As a result of accepting this investment, your ownership has decreased to 80%. The company grows, but your portion is smaller than before.<\/p>\n<\/div>\n\n\n\n

Dilution is a common occurrence in equity financing rounds. If you seek further investment in exchange for equity, your portion of ownership will decrease further. It is your choice whether to dilute your stake in your company. Still, you should consider the long-term implications of your decision, including potential loss of control and voting power. <\/p>\n\n\n\n

2. Due Diligence <\/h2>\n\n\n\n

Potential investors will conduct due diligence<\/a> on your company to ensure it will be a sound investment. By carefully choosing which companies to invest in, investors safeguard their assets from risk. You should prepare for them to conduct due diligence by gathering the necessary documents and information, including legal and accounting records. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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