Preparing Your Business for Private Investment: A Legal Roadmap

Bringing in private investment is a transformative moment. The capital fuels growth, but the diligence process and the investor's expectations also force the business to mature. Companies that prepare well for investment achieve better terms, faster execution, and stronger long-term partnerships with their investors. Companies that arrive unprepared often discover that their first conversation with sophisticated investors is also their hardest.

What **"investment-ready"** means

An investment-ready business has:

• A clean and well-documented corporate structure
• A clear and current capital table
• Strong governance fundamentals
• Robust IP ownership and protection
• Solid commercial contracts
• Defensible financial records
• Compliance with key regulatory regimes
• A clear strategic narrative

Investors will diligence each of these. Gaps reduce price, slow execution, or kill deals altogether.

Step 1: Get the structure right

Confirm that the entity raising capital is the right one. Common issues include:

• The trading company is in the wrong place in the group
• Founders hold IP personally rather than through the company
• The shareholding structure is messy or includes inactive parties
• The constitution does not support the contemplated transaction

Fix these before launching a process. A structural change mid-process erodes credibility and can create tax issues.

Step 2: Tidy the capital table

The capital table tells a story to investors. It should be:

• Accurate and reconciled
• Free of dormant or unauthorised securities
• Reflective of any options, warrants, performance rights, convertibles or SAFEs
• Aligned with the constitution and shareholders' agreement
• Recently reviewed and signed off by the company secretary

Common problems include:

• Verbal commitments to issue shares that were never documented
• Outstanding option grants that have not been formalised
• Convertible notes with terms inconsistent with the cap table
• Founder vesting arrangements without proper documentation

Step 3: Establish proper governance

Investors expect governance frameworks proportionate to the size of the business. At minimum:

• A clearly composed board with regular meetings
• Documented board policies (continuous disclosure, conflicts, related-party transactions)
• A risk register and high-level risk framework
• A delegations matrix
• Clear board pack standards
• A nominations and remuneration framework

For companies expecting institutional investment, the bar is higher: independent directors, audit committee, and formal subcommittee structures.

Step 4: Protect the IP

IP is often the largest source of value (and risk) in a growth-stage business. Investment due diligence will scrutinise:

• Ownership: Is everything held by the right entity?
• Assignments: Are all contractor and former employee IP assignments in place?
• Registrations: Are trade marks, patents and designs registered where they should be?
• Open source: Is the company complying with open source licences?
• Trade secrets: Are there appropriate access controls and confidentiality agreements?

Pre-investment IP audit is one of the highest-leverage exercises a company can run.

Step 5: Clean up commercial contracts

Material contracts (customers, suppliers, partners, distributors) need to be:

• Signed by authorised parties
• Current (not expired or auto-renewing on disadvantageous terms)
• Free of unfavourable change-of-control clauses (or at least with those clauses identified)
• Stored in a clear data room

Verbal arrangements with key counterparties should be reduced to writing where possible.

Step 6: Address employment

Employment is increasingly a focus of investor diligence. Ensure:

• All employees have current, signed contracts
• Contractors are properly classified (and not at risk of being treated as employees)
• Restraint clauses are enforceable
• Wages and superannuation are current and accurate
• Any current or threatened disputes are documented

For key employees, consider whether retention arrangements (such as ESS grants vesting on the investment, or post-investment vesting) are appropriate.

Step 7: Get the financials in order

Investors expect financial information that is clear, defensible and well-supported:

• Three years of financial statements (audited or reviewed where possible)
• Recent management accounts
• Reconciled tax position with no surprise ATO matters
• Working capital analysis
• Forward-looking forecasts with clear assumptions

Engage your accountants early. A clean financial story significantly improves valuation outcomes.

Step 8: Set up the data room

A well-organised data room signals quality. It should be:

• Indexed clearly by category (corporate, contracts, IP, employees, financials, regulatory, litigation)
• Complete (no obvious gaps)
• Up to date
• Restricted to permitted users with appropriate watermarking

Step 9: Prepare for the term sheet

Most investments start with a term sheet. The terms most commonly negotiated include:

• Valuation (pre-money or post-money, headline and fully diluted)
• Investment amount and structure (equity, convertible note, SAFE)
• Liquidation preference
• Anti-dilution protection
• Board composition
• Reserved matters (investor consent rights)
• Information rights
• Pre-emptive rights, drag-along, tag-along
• Restraints on founders

Founders should negotiate these consciously, not just on price. The non-price terms shape the relationship for years.

Step 10: Plan post-investment

Bringing on an investor changes the business. Plan:

• Post-investment governance changes (new directors, refreshed reserved matters)
• Reporting cadence to the new investor
• Use of capital
• Hiring plan
• Strategic milestones for the next round

Sophisticated investors expect a clear plan, not just a request for cash.

Common pitfalls

• Approaching investors before the business is ready
• Underestimating diligence (it always takes longer)
• Negotiating only on price, not on non-price terms
• Inadequate documentation of historical commitments
• Founders giving up too much governance control too early
• Forgetting tax considerations until after term sheet signing

How Luma Legal can help

We help founders and growth-stage companies prepare for private investment, run pre-diligence reviews, fix identified issues, negotiate term sheets, draft transaction documents, and complete the deal cleanly. We work alongside corporate advisers, accountants and tax specialists to make the process work end-to-end.