About how easy it is to beat 99% of traders. And about why I (a resident of the Republic of Belarus) am not a stock market investor.

Founder and CEO of the platform for working with IT specialists Rubrain.com.

Arthur Shmoilov

Lawyer .

Alexey Kotomin

Lawyer .

Often startups at the very beginning look like this: two programmers sit in a cramped room, concentrating on cutting code on computers. They don't have anyone else on their staff. They occasionally hire freelancers for some tasks, but don’t think about reporting at all. But after some time they understand that they need to develop, and for this they need funds.

Thanks to a lucky coincidence, they find an investor who is ready to invest money and even offers his lawyer to complete the necessary paperwork. The parties sign an agreement, but just at the moment when the startup begins to make its first profit and the business begins to grow, the founders suddenly discover the first surprises, not always pleasant ones.

The whole point is that, without understanding it, they signed an agreement containing enslaving terms of cooperation. Let's figure out what to pay attention to in order to avoid unpleasant situations, and what documents can regulate the relationship between a startuper and an investor.

Term Sheet, or agreement of intent

This is the very first document that transfers your verbal agreements with the investor to paper. Usually it indicates the amount of investment, the size of the share that the investor will receive, the investor’s rights in relation to the company’s shares, your rights, and features of further financial and legal documentation.

It would be good to understand at this stage whether you will choose a loan agreement or an option agreement, as well as in what jurisdiction your company will operate and where your intellectual property, if any, will be registered.

If your project is focused only on the Russian market, for example you produce samovars, register in Russia. If you have an IT project with which you want to enter the global market, analyze where it is better to store intellectual property and where it is easier to pay taxes. To do this, you need to contact a lawyer who provides advice on intellectual property issues and has experience in structuring cross-border transactions.

Service in the offshore jurisdictions of Cyprus and the Cayman Islands is cheaper, but price should not be the only criterion for your choice.

In any case, you should focus on the jurisdiction that regulates the main market in which the company expects to sell its goods or provide services.

The Term Sheet, as a rule, has no legal force and can be a very small document - just a few A4 sheets. However, at a minimum, all participants must sign it, and at a maximum, you can still pay attention to the conditions, which, if necessary, one of the parties can still declare in court. They usually relate to the confidentiality of the transaction and the exclusivity of the agreements. For example, the letter of intent will say whether you can contact another investor in parallel or not.

Examples of such conditions:

“The parties agree to treat all discussions related to the transaction contemplated by this Letter of Intent, as well as this Letter of Intent, as confidential.” “The Company and the Founders have agreed to an exclusive period until ... during which the Company and the Founders agree not to enter into or cause to be entered into negotiations and/or otherwise actively interact with any third party, initiate or proceed to inject capital by issuing shares or other securities of the Company or by attracting debt financing (except for ordinary business activities).”

The choice of further documents will depend on the financing model that you and the investor choose. In any case, all legal documents state the purposes of financing, and they should be quite specific - research & development, hiring employees, and so on.

Limitations on the use of investments are also legally fixed, that is, the limits beyond which a startup that has received money cannot go. Violation of agreements threatens the return of investments or immediate conversion of funds into shares and shares of the company.

What investors want to see

Professional investors are interested in the following questions:

• the total amount of capital investment and the share of money invested in the project;
• interest rate on investments - standard interest offered by financial organizations is 14-15% per annum, the investor is interested in large incomes;
• the time of return of the invested money - the terms are measured in months and years, the calculation starts from the point when the profit completely covers the starting capital;
• estimated risks - an honest description of all possible difficulties will increase the image of the aspiring entrepreneur in the eyes of the investor.

The title page of the business plan should contain the following information:

1. Investment size;
2. Interest rate on income;
3. Maximum time for full payback.

If the prospective partner is not satisfied with the specified information, then he will not get acquainted with the rest of the project. The investor is not interested in anything other than profit. Non-standardity, social significance, benefits for the life of penguins in South Africa and other touching tinsel do not bother anyone. The basic rule of attracting investors: a logical description of its income with minimal costs.

Convertible Loan Agreement

A convertible loan gives an investor the opportunity to quickly make an investment without spending a lot of time negotiating the terms of their participation in the company. Essentially, an investor lends a company a certain amount of money, and in return acquires the right to return either this amount along with interest, or a certain number of shares of the company. The number of shares is calculated based on the company's valuation at the date of the loan.

Do not forget about the restrictions: it is reasonable to draw up this agreement if your company is registered not in the Russian Federation, but, for example, in England, the USA or some offshore zone. At the moment in the Russian Federation, the mechanism for transferring shares from founders to investors is not working well.

Technology parks and business incubators

To develop entrepreneurship in Russia, business incubators and technology parks have been created, the main task of which is to help budding entrepreneurs at the stage of starting their activities.

A technology park is an organization created to use technological and scientific resources to improve the economic situation in the region. Technoparks include research institutes, business centers, and they work closely with higher education institutions.

The technology park can be described as a “City within a City”. The priorities of technology parks are innovations in various fields (nuclear industry, nanotechnology, IT, etc.).

There are business incubators based on technology parks. Business incubators are institutions created to support entrepreneurship. Business incubators finance projects such as computer equipment, manufacturing, services, telecommunications, the Internet, natural sciences (biology, chemistry), etc.

Business incubators help entrepreneurs by:

• Providing rental premises on preferential terms for business development.
• Consulting on legal issues, tax issues, accounting, drawing up a business plan, advanced training and training.

Business incubators create comfortable conditions for the development of small businesses.

In order to become a resident of a business incubator, you must meet the following requirements:

• Draw up a business plan for your project.
• Indicate the target audience for which the business is designed, possible competitors, project implementation schedule, income and expense plan. And also the reasons why the applicant believes that the project should be placed in a business incubator.

More detailed and specific requirements for applicants can be clarified directly from the business incubators themselves. The program to support entrepreneurs in business incubators is designed for 3 years. It is this time that is believed to be necessary for beginning businessmen to promote projects.

Option or option contract

This is an alternative to a loan agreement, which is suitable for those companies registered in Russia.

From June 1, 2020, two new articles appeared in the Civil Code of the Russian Federation: on the option Art. 429.2 of the Civil Code of the Russian Federation for concluding an agreement and an option agreement Art. 429.3 Civil Code of the Russian Federation. What these documents have in common is that the parties agree on conditions that must be fulfilled not immediately, but in the future. The difference is what the entitled party receives.

With an option to conclude a contract, one party to the agreement grants the other party the right to enter into one or more contracts under the conditions specified by the option. As a rule, it is provided for a fee. But under an option agreement, one party, under the conditions provided for by this agreement, has the right to demand from the other party to perform certain actions (payment of a sum of money, transfer of property, etc.) within a specified period of time. If the authorized party does not make a demand within the specified period, the option agreement is terminated.

An option agreement, unlike an option, does not require the conclusion of a main agreement. It gives the right to demand performance when certain circumstances occur.

Usually two variants of the option are implemented - providing for exit from the company or, on the contrary, establishing control over it. In the first case, business owners or option investors have the right in the future to sell shares of the company or shares in the authorized capital at a predetermined price upon the occurrence of certain circumstances. In the second case, a different situation is considered - the opportunity to establish control over the acquired company if the profitability meets the buyer's expectations. Then the authorized party receives the right to redeem the remaining shares or share of the authorized capital at the disposal of the counterparty. The price is also calculated in advance.

For what purposes is an investor needed?

Any enterprise requires investment of funds for development. An ideal project will not develop if the entrepreneur cannot find an investor and will die at the formation stage.

When looking for a business partner, entrepreneurs expect to share with him:

• the amount of initial capital;
• subsequent income;
• risks.

Finding an investor also involves dividing possible risks: no one can guarantee that a new company will instantly occupy the expected place in the sales market and will allow a return on the invested start-up capital in the shortest possible time.

Shareholders Agreement

Imagine the situation. You just graduated from a prestigious university and founded a startup. They themselves led the team as CEO and found an investor. The investor understood that the company would not immediately make a profit, and agreed to give you six months to develop. At the very beginning, to celebrate, you signed a bunch of papers with the lawyers, and then plunged into work. You had an excellent relationship with the investor, and he did not interfere at all with the startup’s activities. And one morning, when you come to the office, you discover that the CEO is no longer you at all, but a completely different person.

What did you do wrong? Why did this situation even happen? The answer is simple: when signing the shareholder agreement, you did not pay attention to the key point - whether the investor has the right to appoint his own CEO.

A shareholders agreement is intended to regulate relations between shareholders in a company. According to this document, the parties agree on how to manage, how to distribute profits, and whether they undertake to nominate their candidates to the board of directors. It is also written:

• who can fire key executives;
• who can appoint the CEO and CFO or engage the financial controller;
• what issues should only be decided by the board of directors, and what issues the general director himself has the right to decide;
• what documents a particular shareholder may request and how often.

Drawing up and approval of the document usually takes several weeks. It is concluded between all or several shareholders and regulates all major issues of the life of the company.

Methods

There are many ways to attract investment in a new business. You can find an investor both among people you know and on business platforms.

Rich relative or friend

This option is used as a backup when other options are completely exhausted.

Conducting a common business with family and friends is difficult: even they will have to be interested for a long time, show the business plan drawn up and explain the benefits of the investment. You can attract attention with shares in the business.

The positive aspects of investing in an enterprise that are familiar include:

• hassle-free agreement on the time of return of invested funds - the terms can be extended to the most distant possible;
• accelerated receipt of the missing amount - the entrepreneur does not have to collect packages of documents or wait for a positive decision from third parties.

Funds

You can find an investor through specialized investment funds designed to support small businesses. Obtaining financial assistance in them is sometimes quite difficult: responsible persons will have to prove that the new project is viable and will pay off within the estimated time frame.

One of the requirements of the funds is that the aspiring entrepreneur has his own capital. The allocated money must be a certain part of the total amount of the starting package. Loans from them are more suitable for people who already have operating businesses.

To obtain approval, it is necessary to draw up an analysis of the company’s activities and formulate a detailed plan for its future development.

Of great interest to newcomers are state-owned fund organizations that invest in firms on a competitive basis.

Investor meetings

The purpose of attending such meetings is to announce to the general public about the developed project, attract the attention of potential sponsors, and obtain a loan or grant. This method has a visible advantage for a beginner:

1. He receives information on how to properly conduct business;
2. Establishes contacts with possible partners;
3. Finds official support from the right people.

Networking

It involves the gradual creation of trusting relationships with a certain circle of people whose help may be needed in the future. Experts have published a large number of practical manuals, after studying which a novice entrepreneur will learn:

• find the right investment events;
• search for people associated with stock companies;
• convince them of the need to inject additional capital into their business projects.

The key rule of networking is the ability to persuade an investor who refuses to take part in the opening of an enterprise to provide contacts of people who will be interested in it.

Incubator

Business incubators mean government organizations that support small businesses in the Russian Federation. The positive aspects of searching for such an investor include large investments and significant discounts on office rent, while the negative aspects include large taxes, which are intended to increase the return on investment of such incubators.

When searching for a suitable project, you need to familiarize yourself with all the previous work of the business incubator. The reliability of cooperation depends on the number of successful launches of enterprises and companies and their further work.

After choosing a specific investor, you should submit an application for consideration.

After receiving the invitation, you will have to prove the viability of the business project with the help of a well-written plan to the incubator employees.

Forums

Communication on thematic websites dedicated to investments will help you find an investor for the project being implemented. After registering on the forum, you need to approach the problem gradually:

• study the basic “weather” among users;
• maintain a conversation with participants;
• communicate with potential investors through personal correspondence.

Only after preparing the ground can you publicly declare your idea and ways to implement it, and ask for financial help.

Venture investors

The variant has become widespread in developed countries. Venture investing involves investing money in risky projects with good future prospects. Preference is given to:

• innovation sphere;
• scientific research;
• Internet technologies.

In rare cases, you can receive support for starting a business in the service or trade sector. When seeking approval, an entrepreneur must remember that venture investors want to receive a constant and stable income. They are co-owners of the new enterprise for several years, after which the share is sold to interested third parties.

Banks

The search for an investor leads newcomers to try to obtain a bank loan to open a new enterprise. It is difficult to obtain large sums from financial institutions; this method is preferable for small starting capital.

Organizations providing loans make serious demands on potential borrowers:

• availability of guarantors;
• a large list of supporting documentation;
• provision of real or movable property as collateral.

Incomplete fulfillment of the requirements will result in a refusal to issue a loan to the applicant.

Business platforms

There are special investment exchanges that, after reviewing the submitted projects, can sign a cooperation agreement. Notable projects include:

• start2up.ru;
• EASTWESTGROUP;
• investorov.net and others.

Many newcomers, when they first visit these Internet sites, firmly believe that in order to receive help, they only need to post a description of their business project. In reality, the search for an investor involves lengthy correspondence and calls with potential investors. For one hundred applications, you can receive five responses, among which there may be one positive.

Documents confirming registration of intellectual property

Startups always have an acute problem of intellectual property. It is either not registered properly or was not properly transferred to the company from the developers. So, for example, freelancers who send you code are precisely the producers of that same intellectual property.

Before starting development, it is necessary to conclude an agreement on the performance of work (or provision of services) and draw up a technical specification: how the work is performed and what exactly is its result. And then sign an acceptance certificate with each freelancer. And then this is proof for the investor that the code belongs to your company. After the transaction is concluded, it is placed on the balance sheet of the legal entity.

How to contact?

Once you have made contacts, you must immediately submit an offer. In order to formalize a partnership, we will need a letter, presentation or website. A simple landing page will be enough. It's best if everyone is together.

The purpose of the letter is to answer three questions: who we are, what we offer, and why you should give us money. Write a simple letter, but not a template. Tell us about yourself personally, but briefly, then about your project, its niche and potential. After that, what benefits will the investor receive and what benefits will the clients of your business receive?

The presentation and website can be supplemented with graphics and photographs. Graphs will show your forecasts and market research results. Photos of already running processes, be it your grateful clients or team, will give the project a face, a personal shell. Often, investors continue to wait for the right moment to enter a particular market. Predict this moment in your industry. Make it clear that you value other people's capital.

Naturally, successful negotiations are impossible without a decent business plan, as well as specific indications of the cost for which the investor will become part of the project. Write soberly and moderately - how much money you need, how you will spend it and how you can account for the use of capital.

Documents confirming ownership

If you are married at the time of the transaction with the investor, sign an agreement with your spouse according to which she or he does not object to the sale of shares in the company or the conclusion of transactions.

It doesn’t matter that you only own a couple of computers. This is a standard document, the signing of which, however, is often neglected. But spouses can divorce and begin to divide joint property. Or the spouse declares that she was initially against the deal, the court declares it invalid and obliges you to return the share to the investor.

In practice, many startups fail due to disagreements between founders and investors. In order to avoid this, always study potential partners and approach the choice of investors not only from the point of view of future financial investments, but also from the point of view of common views on the further development of the business. And back up your feelings with legal documents.

Idea

The decision to invest material resources in a project depends on the correct conduct of negotiations. Regardless of charisma and natural charm, an entrepreneur must be fully prepared for the meeting.

The main goal of the negotiations is to convince the potential investor of the prospects of the enterprise. An investor may have a large number of questions: they need to be answered in detail and as honestly as possible. People with money are good at detecting lies.

If an outsider took part in the development of the idea for a new business, then you should invite him to the presentation. No matter how ideal the project may look in the eyes of the owner, it may not be completely clear to the investor.

The specialist will explain the nuances in detail, making it easy to deal with any questions that arise.