Overview
Every funding round carries terms beyond the investment amount itself, from liquidation preference rights to investor authority over future company decisions, and these terms need careful review to protect founder interest long-term.
As a startup grows through multiple funding rounds, it may need to convert its legal structure from an LLC to a closed joint stock company, a conversion that carries procedural requirements worth planning for in advance.
Regulatory Basis
These transactions fall under the Companies Law regarding ownership structure and shareholder rights, alongside general contract provisions in drafting funding round agreements.
Where one investor is a foreign entity, MISA licensing considerations are added to round structuring, particularly if it results in a change to the foreign ownership ratio.
How a Funding Round Proceeds
A round typically begins with an initial term sheet setting valuation and the amount invested along with core rights, followed by drafting the final shareholder agreement detailing these terms precisely.
We review every term in the term sheet before signing, since it sets the framework for subsequent negotiation, and conceding an important point at this stage is difficult to recover in the final agreement.
Who Needs This Service
A startup founder negotiating a funding round who needs the term sheet reviewed before signing to protect their long-term interest.
A startup that needs an employee incentive plan structured through an equity scheme aligned with Saudi Companies Law.
We often see founders sign off on a liquidation preference term in an early round without fully understanding its cumulative effect across later rounds, as these preferences stack with each new round until they reach a level that substantially reduces the founder's actual share in any future exit scenario. We model the effect of these terms across different exit scenarios before signing, not evaluating the current round in isolation from what came before it.
Additional Considerations
Accepting a new funding round sometimes requires converting the legal structure, a matter we review under our company formation service before the round closes.
For founders negotiating specifically with a foreign investor, this connects with a review of that investor's MISA licensing as part of structuring the round itself.
Common Questions
What's the most important term worth reviewing in a term sheet?
Liquidation preference rights and investor authority over future decisions, since these are the terms that most affect founder interest later.
Do you review employee equity plans?
Yes, we help structure these plans to align with the Companies Law while achieving the intended incentive goal.