Transparency in Legal Documents
I had to do something this week that I have never done before which is almost walk away from a verbal commitment I made towards giving money to a company. It has to do with legal documents and zero transparency.
I can't stress enough the importance of having a company being built on smart legal documents that create transparency for every investor in the company. Over time there will be more documents drawn up as more money comes into an organization but those first set of documents set a tone for everything going forward.
Investing in a company is risky but when the documents are anti-investors then there is nothing legally covering your risk. If you have intellectual property the documents need to be shared. When a company shares documents with me that are a mess it sends a lot of red flags. It makes me want to dig deeper to find if there are other deals that I don't know about that might crop up later from employment contracts to advisor shares. When you start to take money from the first round of investors particularly ones that have seen more documents than they care to, listen to their advice about cleaning up the legal part of the company before moving forward. It is for the good of everyone. Documents are not like a diner where everybody gets a different order.
I felt terrible thinking that I would have to walk away from a commitment but it was the company/entrepreneur that was putting me in a situation where I had no choice. I can't participate when I know that we will discover information after the closing that will put all the investors in a situation that did not need to take place.