Keeping a Clear Fundraising Paper Trail

"These documents all have schedules and representations and warranties, which in turn require [their own] schedules of exhibits," says Gilroy. "There are a lot of coattails, but the deal is defined around these documents."

In many cases, there may be other contracts to sign, such as employment contracts and a noncompete agreement for the CEO or executive team. If the investment includes a loan component, there could be a whole host of loan agreements and other representations related to the debt. Expect most sophisticated investors to take three to five weeks to complete due diligence and get agreements drafted.

No discussion of fundraising documents would be complete without a nod to Uncle Sam. When financing includes selling stock, be sure to consult with a securities attorney about complying with federal and state laws.

Of course, each deal is different, but all deals require respect for the documentation process. From business plans to regulatory filings, each document is a link in an important chain of events. Skipping any of the steps can invalidate the entire investment and trigger further legal complexities. Smart entrepreneurs will cross their t's and dot their i's.