So, you’re in the midst of an equity financing. Your Term Sheet has been signed and documents are being drafted. Things are looking great—just a few revisions to the documents, some signatures to collect, and the money will be in your bank account. Then you and your team can go back to doing what you love—building your company. 

Except that’s not quite how it goes. In the middle of that sequence of events, your lawyer will come to you and say, “okay, it’s time to put together your Disclosure Schedules.” Hopefully, they’ll walk you through what that means and guide you through the relevant sections of your transaction documents, giving you a good understanding of how you’ll go about preparing these. Even so, you might still find yourself questioning whether you’re going about the preparation the right way. We put this post together to help address your questions.

A Note Before We Start

Most equity financings utilize the National Venture Capital Model Financing Documents. Indeed, the Fidelity Equity Financing workflow does too. The representations and warranties in those documents and therefore the disclosures they trigger (because Disclosure Schedules include any information that makes a particular representation or warranty not true) are more robust than those you’d find in the Series Seed Financing Documents. While the topics covered in both sets are similar—just arranged in a different fashion—this post is based on the NVCA set, to provide you with guidance on a greater range of subjects. 

The Basics

The first few representations and warranties that you’ll find listed in your Stock Purchase Agreement cover general information about your company. These include statements that your company is in good standing in Delaware and any other state where you’re registered to do business, that the capitalization of your company is accurately reflected in the documents and your cap table, and that you have all the necessary authorizations (including those from any government authority), to enter into this transaction. 

Here, you might need to disclose that you haven’t yet gotten around to registering to do business somewhere, or you might need to explain any acceleration clauses built into your stock purchase or option agreements. Generally speaking, though, early-stage companies often don’t have a lot to say in response to these sections. 

Litigation, IP, and Compliance

With the representations that follow the basics, the Disclosure Schedules are designed to alert your investors to any situations that might trigger litigation. First, they’re looking to determine whether there are any pending or threatened legal actions against your company. They’re also looking to confirm that you’re not planning to sue anyone. Next, with respect to intellectual property, they’re looking to ensure that you own or have valid rights to use all the IP necessary to run your business. This includes looking at any possible litigation around your IP rights, the proper licensure or transfer of IP from a university or government program, and proper use of open-source software. Finally, investors want to ensure that you’re in compliance with all the agreements you have in place and the laws and regulations relating to your operations. 

Here, if you’re a technology company, it’s important to look at the IP representations in particular, as it’s likely you’ll need to disclose license agreements, open-source software use, and/or intellectual property registration filings that are in process. 

Agreements, Transactions, and Property

Next, the representations ask what agreements the company has that require payments to or from the company in excess of a certain amount, usually $25,000 in a year. This often requires companies to list an agreement or two—a lease might meet this threshold, for example. Additionally, the representations on transactions, registration and voting rights, and property seek to ensure there are no competing transactions of a similar nature to the one your investor is planning, nor are there any issues with any of the property your company owns. 

Financials and Changes

The financial statements representation is similar to the capitalization one, in that it asks you to confirm that the information provided in those documents is accurate. This representation often triggers a disclosure that the company is not yet adhering to Generally Accepted Accounting Principles, as companies tend not to do so until after their Series A financing. 

The changes representation refers to a rather long list of unfortunate events that your company might have encountered since the date of the financial statements. Essentially, this list asks whether your company is in the midst of something that might have what’s called a “material adverse effect” on the company. Alternatively, some early-stage companies merely represent the absence of any “material adverse effect” since the date of the financial statements. The term “material adverse effect” has a specific meaning, but it really boils down to an event that would make your company less valuable, promising, or secure. So, assuming none of the events listed are happening to you, you have nothing to disclose!


The employee matters representation gives your investor a sense of the makeup of your team and ensures them that you’re complying with applicable laws regarding employment. This may seem trivial, but startups often misclassify employees (treating those who should be employees as contractors) and sometimes delay paying people until funding comes in. If this is the case in your company, they will want to know, so they can work with you to mitigate any risks associated with those actions. 

Taxes, Insurance, and Corporate Documents

The next several representations simply ask you to verify that you have several things needed, or recommended, for running your business—like insurance policies, permits, and agreements with your employees that protect your company’s confidential information and assign the IP they create to the company. Sometimes companies are still in the process of obtaining the last of these from a few people, in which case they’ll want to disclose that. 

Additional Disclosures and a Catch All

There are several additional disclosures which may be included in your documents if they’re applicable to your company. For instance, certain representations only apply to life sciences companies, and ask you to certify that clinical trials are being managed properly and that necessary FDA approvals have been obtained. Regardless of whether you’re a life sciences company or not, you’ll likely see representations ensuring you’re taking proper steps to protect your company’s data, that you’re dealing appropriately with any foreign officials, and complying with export control laws (those that apply to goods sold outside the US, which are easy to trigger when you’re a technology company). 

Of course, there is also a catch all representation, designed to ensure that you’ve provided your investor all the information they would want to see, and that the company’s representations are true and they are not misleading because something your investor would find important hasn’t been identified. 

One Additional Thing

Be ready for your Disclosure Schedules to take some time to prepare. You’ll want to be sure to capture everything that might be relevant in response to each representation and warranty. Companies are often advised to over-disclose in early drafts of their Schedules so that their lawyer can get a more comprehensive picture of the company’s history. The initial version will often be trimmed down, but the process of identifying anything that could be relevant and reviewing it with your counsel is a worthwhile one.


Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

 Tags: Fundraising