BRAZIL Law and Practice Contributed by: Fernanda Levy, Aline Bauermeister, Rodrigo Menezes and Fabiana Fagundes, FM/Derraik
• to analyse the holders of the company’s share capital (on a fully diluted basis), as well as intellectual property and regulatory aspects; and • to ascertain whether the start-up has the necessary assets and licences for the devel - opment of its business, as well as the legal certificates confirming it is involved in admin - istrative or judicial proceedings, and the cor - responding risk assessment. For start-ups at more advanced stages of com - pany development, due diligence is deeper and more complex, covering financial and account - ing aspects in addition to full legal due dili - gence, so that investors can identify contingen - cies (potential or materialised) and whether any mitigation measures can be adopted to address such issues. 3.2 Process Investment Process and Timing The timeline for a new financing round in a growth company involving new anchor investors can vary significantly based on several factors, including: • the complexity of negotiations; • due diligence requirements; • the current financial condition of the com - pany; and • the level of interest among potential investors. The following is an outline of a typical fundrais - ing process. • Preparation phase: This includes getting the company’s financials and corporate structure in order, preparing pitch decks and potentially hiring/working with advisers. • Initial discussions: The company begins to approach potential new investors (anchor
investors) and re-engages existing investors to gauge interest. • Term sheet: This involves negotiation and outlining the key terms of the investment. • Due diligence: This begins concurrently with or following the execution of the term sheet. New investors will scrutinise the company’s financial, business model, market potential, legal, compliance and other critical aspects. • Legal documentation and final closing: After agreeing on a term sheet and satisfactory due diligence by the investor, legal documents are drafted, negotiated and executed. Overall, for a priced equity round, a typical time - line to close is three to six months. For a con - vertible instrument, this could be as little as one to three months. Relationships Between Various Parties Existing versus new investors Existing investors may have different interests compared to new investors, particularly regard - ing valuation, dilution and the strategic direction of the company. Existing investors typically want to protect their stake and to ensure continued influence, while new investors may push for terms that favour their new injection of capital. New investors might also negotiate for preferen - tial terms such as liquidation preferences or anti- dilution protections, which can lead to conflicts with existing shareholders. Joint versus separate counsel Often, each party or group of parties with aligned interests usually has separate legal counsel to ensure their interests are fully represented. However, in some cases, particularly in smaller rounds or when parties have pre-existing align - ments, joint counsel may be used. A group of investors may also share the same legal counsel.
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