Raising external capital is a milestone for any company  but it is also a decision that will affect your business for many years to come. The investors you choose, the terms you accept, and the governance structures that are implemented will shape your company’s future. In this article, we walk through what you as a founder should consider, from choosing investors and negotiating term sheets to corporate governance, control, and common pitfalls. 

 

## **Choose Your Investors Wisely** 

 

Raising capital is not just about securing funding, it’s about finding the right partner. Potential investors will conduct due diligence on you, and you should do the same in return. Ask about their track record and how they support their portfolio companies when things get tough. Speak to other founders they have invested in. A good investor can make a real difference for your company, but choosing the wrong partner can cost far more than it contributes. 

 

## **Pay Attention to the Term Sheet**&#x20;

 

A term sheet may look like a simple summary, but it sets the framework for the negotiations that follow.

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### As a founder, you should pay particular attention to the following key areas: 

 

**Preference shares**&#x20;

Investors often receive shares with special rights, including the right to get their money back first in a sale or liquidation. Make sure you understand how these preferences work and what they would mean for you in an exit. 

 

**Dilution**&#x20;

Every funding round dilutes existing shareholders. Know how much of your company you are giving away – not just today, but also after future rounds. If a founder has given away too much at an early stage, the company may also become less attractive to future investors. Negotiate anti-dilution protections if you can. 

 

**Board composition**&#x20;

It is reasonable for investors to want board seats, but make sure you retain meaningful influence. If the board is dominated by investor representatives, you may find it harder to make your voice heard. 

 

**Drag-along clauses**&#x20;

These provisions can force minority shareholders to sell if a majority approves a transaction. Although common, the thresholds and conditions matter  make sure they do not deprive you of influence in a future exit. 

 

## **Ensure Sound Corporate Governance** 

 

A well-drafted shareholders’ agreement and articles of association are your safety net. These documents govern how decisions are made, how disputes are resolved, and what happens if someone wants to leave. Do not treat these as boilerplates. Negotiate terms that protect your interests, such as supermajority requirements for material decisions, clear processes for share transfers, and what happens if a co-founder leaves. Ambiguity in governance documents often leads to conflicts down the road. 

 

## **Maintain Control** 

 

Taking on investment does not have to mean giving up control of your company, but it requires careful consideration. 

 

**Protect key decisions**&#x20;

Identify which decisions are critical to your vision - hiring key personnel, changing the business model, issuing shares and other securities  and negotiate veto rights or consent requirements. 

 

**Structure voting rights thoughtfully**&#x20;

Consider share classes with different voting rights if appropriate for your situation. 

 

**Build relationships**&#x20;

Corporate governance is largely about trust. Be sure to maintain open communication with your investors and involve them strategically. If something goes wrong, investors should be informed at an early stage so that you can work together to find a solution. Investors who feel involved tend to be more collaborative. 

 

## **Avoid Common Pitfalls** 

 

As in any commercial negotiation, there are pitfalls. Some common ones we frequently encounter are: 

 

**Rushing**&#x20;

The pressure to secure funding can lead founders to accept unfavourable terms. Take the time to understand every clause  and do not be afraid to walk away if something does not feel right. Ask questions. 

 

**Underestimating legal costs**&#x20;

Good legal advice is not cheap, but bad agreements are far more expensive. Budget for experienced advisors who specialise in investment transactions. 

 

**Focusing only on valuation**&#x20;

A high valuation means nothing if the terms erode your ownership or control. Look at the full picture, including liquidation preferences, anti-dilution protections, and governance rights. 

 

**Neglecting founder alignment**&#x20;

Before raising capital, make sure you and your co-founders are aligned on vision, roles, and what happens if someone leaves. Investor due diligence can expose cracks in the founding team. 

 

## **Final Thoughts** 

 

Raising capital is ultimately about more than money, it is about building the right foundation for your company’s future. If there is one lesson to take into your next fundraising process, it is to be thorough. Ask questions, read the fine print, and surround yourself with advisors who have your back. 

 

You have worked too hard to build your company, do not give away more than you have to, and do not compromise on what matters to you. If you negotiate wisely, you can continue to grow your company on your own terms.

 

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*Article written by lawyers at Wigge (wiggepartners.se) specialising in transactional law and investments.*  

 

Please contact Louise Sörelind at Wigge if you are about to raise capital, or have questions about fundraising, shareholder agreements, or investment terms. 

 

Louise Sörelind, Counsel – [<u>louise.sorelind@wiggepartners.se</u>](mailto:louise.sorelind@wiggepartners.se) 

 

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Raising Capital: What to Know Before You Sign