Module 4 · Chapter 10

Warranties, Disclosure and Completion

On a funding round the company and its founder make promises about the business. This chapter shows who gives them, how a disclosure letter limits them, and how completion turns money into shares.

≈ 14 min read 8-question test

In this chapter

  • Who gives the warranties on a round, and how the agreement limits them
  • How a disclosure letter qualifies the warranties, and what counts as fair disclosure
  • What happens between signing and completion, and the step that makes a shareholder

10.1Warranties on a round in one paragraph

A warranty is a statement of fact in the investment agreement, and the investor can claim damages if it is untrue. On a share sale the seller gives the warranties, because the seller takes the money. On a funding round the money goes into the company, so the company and its founder give them instead. A disclosure letter lists the exceptions, and the agreement limits what anyone can claim.

Key point

On a round, warranties work more as a checklist than as insurance. Investors rarely sue the people running a company they have just backed. The value lies in the checking the warranties force before the money moves.

Also in this chapter

  1. Who gives the warranties when there is no seller
  2. How a disclosure letter limits the warranties
  3. What the founder must ask before she signs
  4. Five limits on a warranty claim
  5. Why completion waited for the regulator
  6. Completion, step by step
  7. The warranty that was untrue on the day it was given
  8. Repeating the warranties at the Series B
  9. Your job

Preview

The rest of this chapter opens with a free account. Every edition is free to read until 31 January. Open a free account by the end of that day and keep every edition published by then, for good. Open it from the edition home →