Attracting Investors: Practical Legal Advice for Startups and Scale-ups
Founders in CEE are sitting on a wave of capital opportunities — but too many still walk into investor talks unprepared. From ownership disputes over code to shaky cap tables, the mistakes are often avoidable yet costly. As both an M&A lawyer and an investor, I’ve seen how preparation — or the lack of it — can decide whether a deal gets signed or collapses.
Attracting new investors is often a pivotal moment for any startup or scale-up. It is not merely about convincing someone to inject capital into your business; it is about forging relationships built on mutual trust and a shared vision. While stories of investors pushing founders out do exist, such situations usually arise from poor preparation, weak structures, or mismanaged expectations. Instead of approaching investors with suspicion, focus on presenting a legally robust and financially sound venture — one that underscores both the professionalism of your team and the viability of your product or service.
Know Why You’re Raising and What Kind of Investor You Want
Before you open the cap table, step back and define why you want outside capital and what role an investor should play. Are you seeking funding purely for runway, strategic guidance for new markets, deep-tech expertise, or access to a specific network? Map these needs to the stage and ambitions of your company.
Just as important, ask whether you are prepared to view your business through the investor’s lens — embracing their interests, concerns, and reporting requirements. Aligning on growth strategy, risk tolerance, and governance expectations before term-sheet negotiations prevents culture clashes later. In short, be ready to integrate their perspective into the way you build and run the company.
What Investors Really Bet On (Hint: It’s You)
Investors are betting not only on a market opportunity but on the founders — their vision, credibility, and capacity to scale. The cornerstone of every investment decision is trust.
Trust is earned through legal certainty, financial transparency, and proactive risk management. In today’s highly regulated and increasingly fragmented world — particularly within the European Union’s mosaic of national and supranational rules — demonstrating full compliance is no longer optional; it is a precondition for meaningful dialogue with sophisticated capital.
Run Your Own Due Diligence Before They Do
A thorough internal legal audit, led by experienced counsel, will:
- Identify and mitigate legal risks before they surface in due diligence;
- Show that your business is compliant, well-structured, and ready to scale across borders;
- Preserve negotiating power by eliminating defensive positions born of uncertainty.
As part of the internal audit, it is highly recommended that you pay particular attention to the following:
For technology-driven companies, ideas are the core asset. Securing patents, trademarks, copyrights, and confidential know-how protects your competitive moat and reassures investors that key assets cannot walk out the door. Confirm clear ownership of all code and inventions, and establish robust IP-assignment clauses with employees and contractors. Make sure your company, product, and website brands are either registered as trademarks or clearly vetted to avoid infringing someone else’s marks — this can be mission-critical for your business.
Even minor oversights or disputes with authorities, customers, or competitors can derail a promising deal. Addressing them early signals seriousness and reliability.
Clean Corporate Structures Attract Capital, Messy Ones Repel It
Investors walk away from messy structures. Keep yours clean, efficient, and scalable to minimize legal, financial, and tax risks. Whether you set up as an LLC, a JSC, a Variable Capital Company, or use a dual-entity structure for international expansion, the choice will directly impact your attractiveness to capital.
A transparent and well-organized structure signals discipline, reduces friction in due diligence, and makes it easier to raise follow-on rounds.
Term Sheets Aren’t Traps, If You Know the Rules
Investment documentation often includes terms unfamiliar to founders — drag-along rights, tag-along rights, anti-dilution clauses, vesting schedules, rights of first refusal, and various exit strategies. Although these terms might seem intimidating at first, they are typically designed to protect both investor and founder interests, fostering clear expectations and healthy long-term partnerships.
Drafting comprehensive, clear, and balanced shareholder or investor agreements is essential. Poorly structured agreements can lead to disputes, loss of founder control, and challenges in subsequent investment rounds. The most critical issues to address include:
- Voting rights and decision-making power
- Anti-dilution protections and flexibility for future fundraising
- Exit strategies and liquidity rights
In Fundraising, Trust Decides More Than Tech
Protecting your company is natural, but excessive scepticism toward investors is counterproductive. Attracting investors is about far more than money. It is about cultivating partnerships rooted in trust, transparency, and aligned incentives. Maintain open, candid communication—especially around financial performance—because investors assume significant risk by deploying their capital. By addressing legal, financial, and structural issues proactively, you convert potential obstacles into strategic advantages.
“Successful businesses are built on innovation, but they survive thanks to legal certainty.” —Peter Thiel
Learn more about Karastoyanov, Dobrenova, and Associates.
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