Is an Automated Equity Financing Right for You?

Here at Fidelity, we talk a lot about the future of fundraising—how equity financing processes happen now, how they could be better, and what obstacles are blocking that change. It’s easy to envision how financing deals can leverage computing power to manifest improvements in speed and accuracy—hundreds of pages of legal agreements can be generated within minutes, complex ownership permutations can be calculated, and information can be instantly disseminated and virtually collected. But integrating technology into a fundraise also necessitates behavior change by everyone involved and will shift some of the relationship dynamics.  

Fidelity combines standardized, industry accepted model documents with robust configurability to create draft documents and manage all aspects of the fundraising process including handling approvals, board and stockholder communications, document updates, and more while leveraging existing company data. We’ve modernized the closing process with e-signatures, status tracking, and automatic organization of executed documents in your data room. So, how do you know if an automated financing is right for you? There are a few things to consider:  

Straightforward Deal Terms

If there are any exceptional aspects in either the proposed financing arrangement or the relevant company history, your financing might not be an ideal fit for automation. For example, if you have a liquidation preference that is unique, preferred stock that is not convertible into common stock, or multiple classes of common stock, then standard financing documents may not be appropriate for your deal. If special conditions are present, you’ll likely need to engage counsel to investigate, advise, negotiate, and draft bespoke documentation.  

Alignment of Goals

Before you get started you’ll want to have conversations with your lawyers and investors to make sure that all parties are on board for how to approach the financing, namely to make it as efficient and fair as possible. That probably seems non-controversial, but without an explicit discussion of priorities it’s easy to see how decisions about where time should be invested and when to advocate for a client’s best interests might run contrary to those goals and the very reasons you choose to automate the financing. It also means that if your lawyers aren’t willing to be flexible, e.g., they’re going to insist on their version of a drag-along provision instead of the one in the NVCA template which is fundamentally similar, then you may want to reconsider the approach.  

Standard Document Templates

We leverage model documentation developed by recognized organizations to reflect best practices and be fair and unbiased towards both the entrepreneur and investor. The technology allows for configurability on commonly negotiated terms so there is a direct line from your Term Sheet to the full document set.  While reviewing the financing documents, it’s important that all parties understand the origin and spirit of the drafts. By recognizing that the documents are not drafted by either side and are instead generated from standardized templates, you can minimize the rounds of negotiation and editing (including stylistic edits) that might otherwise occur. 

Comfort with Technology

You might raise capital via an equity financing a handful of times in your life, maybe more if you are a successful serial entrepreneur. But the attorneys and institutional investors involved in your deal may bring much more experience to the fundraise, and with that comes a level of comfort and familiarity with how they have traditionally executed those deals. To successfully transfer the fundraising process to a software platform, everyone must be willing to change a few habits and be ready to let the technology do more of the work.  

Just like you can’t tango by yourself, you can’t do an equity financing by yourself. If you think an automated financing is a good fit for you, your company, your lawyer, your investor, and your investor’s lawyer, we’d love to work with you. 

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. 

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