hello everyone, i am fahad , a student, i have a startup which falls into the fintech category and my idea is about connecting early startups to common people for invrstment purposes, but the thing is i was searching for some guidance in the legal section of this idea, actually i wanted to ensure the investor that the startup wont be a fraud and also prevent any startup from running away with money so i was thinking about making a contract between an investor and the startup so that if possible we can legally bind the startup to return the money or any form of compensation, so if anyone can help me in this section it will be greatly appreciated. thank you.
1 Answer from Attorneys
If the VC wants a guarantee against fraud, you may offer him pdc's as he is investing in the debt route. The PEF will be investing through the equity route, hence you must issue them the shares of your company. The agreement is also a tool to ensure safety but will not work if the entrepreneur has fraudulent intent.
However Insurance may also be an option:
Directors & Officers (D&O) Insurance.
Venture capital firms may be asked to demand that startups buy D&O insurance before they agree to invest in them. That’s because someone from the VC will probably take a position on the funded company’s board i.e. your company and that person wants to be protected once they do. Your organization’s leaders and their assets will be protected by a good D&O policy if claims related to misuses of company funds, misrepresentations of company assets, breach of fiduciary duty, and non-compliance are filed against them.
Some business risks which may be bad may not be covered at all but then you may offer them commercial package policy where certain underwriters may cover fraudulent risks.
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