Organizing Your Docs to Prep for Investor Due Diligence

Paying legal fees and organizing paperwork are not typically entrepreneurs’ favorite things to do. However, getting things in order now will help you avoid headaches in the future like tracking down a signature from an investor hiking in Peru with a 24-hour deadline for an acquisition offer, fighting a claim on your IP from the employer of the developer you hired on the side for the first month of your company, or paying tens of thousands of dollars in taxes for a misfiling with the IRS. All true stories.

First and foremost, I’d recommend making sure you have the best lawyer for your startup. I’ve shared tips on how to do that in this blog post. Then, I’d suggest using the following step-by-step guide to create one organized home for all of your legal documents. This guide will help you organize the documents required by MergeLane and many other early- and later-stage investors, lenders and acquirers.

A Step-by-Step Guide to Organize Your Documents

  1. Create a shareable folder (At MergeLane, we prefer Dropbox) to house ALL of your documents.
  2. Include your company name in the file name (i.e.: MergeLane Due Diligence). Otherwise, your investors end up like me – with 11 Dropbox folders called “Due Diligence”.
  3. When you grant people access to this folder, send them an invitation to join the folder rather than the link. This is more secure and helps prevent document duplication.
  4. Organize your folder with subfolders. Here is my suggested organization:
    • Corporate Records and Charter Documents
    • Securities Issuances and Agreements
    • Employee Matters
    • Material Agreements and Operating Information
    • Intellectual Property
    • Disputes and Potential Litigation
  5. Create subfolders in each of these called “Draft Documents” and “Final Documents”. The “Final Documents” folder should only house the fully-executed versions of your documents once you secure them.
  6. Create subfolders within each “Final Documents” folder for any documents with exhibits and/or amendments (i.e.: Initial Board Consent). Put all of the related documents in that subfolder.

General document tips:

  • If one document refers to another document, or you see a reference to an amendment to a document, make sure to include those as well.
  • Confirm the documents have been signed by ALL parties.
  • Confirm the documents are signed by the CORRECT parties. For example, if you are working with a friend who owns a web design company and decides to give her company equity in exchange for the work she is doing, make sure all of the agreements are with your friend’s company, not with your friend.

eShares Inc.:

I highly recommend signing up for eShares inc to make your and your investors’ lives much, much easier.

A few specific folder suggestions:

“Employee Matters” – Create subfolders for each employee to house all copies of employee agreements.

“Securities Issuances and Agreements” –

  1. Create a folder for each financing. Include the term sheet and final versions of the financing documents.
  2. Create a subfolder to house all of the signed agreements from note holders or investors within those folders.
  3. Create a folder for Stock Option Awards. Make sure you have signed versions of each stock agreement. Create subfolders for each person awarded stock options if needed.

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