Issue link: https://htpgraphics.uberflip.com/i/246991
Funding Section 5 n Warranties – in deciding to commit funds to the project, the Investor will want comfort that the management team is prepared to stand behind the key information documents on which it will have relied when deciding to invest. This will relate in particular to the business plan and due diligence reports relating to the company. Try to negotiate limitations to limit your liability in such circumstances such as a maximum financial cap on your liability. Be wary also as to the nature of any warranties which you will be giving and whether you are being asked to warrant the future performance of the company. You should also disclose any matters which make the warranties untrue by preparing a Disclosure Letter for submission to the Investor. If, for instance, there is a warranty that the company is not involved in any litigation but you are aware that the company is being sued by a creditor, you should inform the Investor of this through the Disclosure Letter. n Consent Matters – the list of consent matters is likely to be far more extensive than those expected at the spin-out stage. Whilst there is still a balance to be struck between operational flexibility for the management team to run the business effectively and the controls required on them by the Investor, the Investor will potentially be committing a sizeable amount of funds to the company. The Investor will be keen to know, therefore, that the scope for the management team to fritter the money away on matters that take value out of the company is limited (eg the management team awarding themselves large bonuses or expensive new company cars without the consent of the Investor). n Information – The Investor is likely to require more detailed information than that required at the spin-out stage. For example, as well as the monthly management accounts, reports may also be required as to current trading, revised forecasts and the performance of the company against financial covenants contained in any banking documents. Consider the practicalities of being able to produce the required level of information within the timescales expected by the Investor. n Restrictive Covenants – The Investor will expect the key members of the management team to give their full time and commitment to the company to deliver the growth forecast in the business plan. It will also expect that any employees who leave the company will not set up in competition against it for a period of time after the end of their 32