Legal Checklist for Investors Before Signing a Startup Deal

Cap table accuracy

The cap table is the map of who owns the company. Before investing, confirm it is accurate, current, and complete. Every share, every option, every convertible instrument (SAFEs, convertible loans, warrants) should be reflected, with the amounts, dates, and conversion terms documented.

Common problems include undocumented share transfers, an option pool that is not reflected, SAFEs or convertible loans that are not on the table, and founders holding shares with no vesting. Each of these changes the investor's effective ownership and should be resolved before the round, not discovered after the money is in.

IP ownership and chain of title

For a technology startup, the intellectual property is usually the core asset. Confirm that the company — not the founders personally, not a contractor, not a university — owns the code, the algorithms, the product and the brand. This means reviewing written IP assignments from every founder, employee and contractor who contributed.

If IP originated at a university or research institution, confirm the rights position — whether a license or assignment is needed from the institution's technology transfer office. If open-source software is used, check license compliance, because certain licenses can restrict the company's ability to commercialize its own product.

Gaps in the IP chain of title are one of the most common reasons a round stalls. An investor who identifies these gaps before signing can require them to be fixed as a condition of the investment — after the money is in, the leverage shifts.

Founder commitments and vesting

The founders are the engine of the company. Confirm they are committed and that their equity is aligned with that commitment. Check whether founder shares are subject to vesting, whether a cliff applies, and whether the company has buyback rights on departure.

Founders holding full, unvested shares are a red flag: if a founder leaves, they keep their full stake, and the company — and its investors — are left with a non-contributing holder on the cap table. A founders agreement with vesting, cliff and buyback terms signals that the founders have aligned their incentives with the company's long-term success.

Also check for side commitments: does any founder have a competing venture, a non-compete obligation to a former employer, or a commitment that limits their full-time dedication to the company? These questions are easier to ask before signing than to discover afterward.

Key contracts and obligations

The company's obligations are defined by its contracts. Review the key agreements: customer contracts, supplier and vendor agreements, employment agreements, office or cloud-services leases, and any partnership or distribution agreements. Understand what the company has committed to, what it is owed, and what obligations could constrain its operations.

Look for change-of-control clauses that trigger on the investment, termination rights that could end a key customer relationship, and exclusivity commitments that limit the company's ability to serve other customers. These terms affect the company's value and flexibility after the investment.

Also confirm that employment relationships are properly documented — written agreements, IP assignment clauses, and clear terms — so that the team that builds the product is the team the investor is funding.

The investment documents themselves

The investment documents — term sheet, SAFE, convertible loan, or share purchase agreement and shareholders agreement — define the investor's rights, protections and exit. Review them carefully, not just for the economic terms (price, cap, discount) but for the control terms: board composition, information rights, approval rights over major decisions, liquidation preferences, anti-dilution, and exit rights.

Confirm the documents are enforceable under Israeli law, that the governing law and dispute resolution mechanism are clear, and that the investor's rights survive future rounds. A term sheet is usually non-binding, but its terms typically carry into the definitive agreements; understanding the term sheet is understanding the deal.

If the company has existing investors, review their rights too: consent rights, pro rata rights, and any protective provisions that may constrain the company's ability to act or to raise future rounds on different terms.

Red flags that warrant walking away

• A cap table that does not match the company's story, with no explanation for the discrepancies
• IP owned by founders personally or by a third party, with no path to clean ownership
• Founders with no vesting and no founders agreement, holding full permanent stakes
• Undisclosed liabilities, litigation, or regulatory exposure
• Key contracts with change-of-control or termination clauses that gut the company's value on investment
• Investment documents drafted to favor the company with no investor protections

Some of these can be fixed before closing; others indicate a deeper problem with how the company has been run. A legal review distinguishes a fixable gap from a fundamental risk, and gives the investor the information to decide whether to proceed, renegotiate, or walk away.

The post-signing checklist

Legal review does not end at signing. After the investment documents are signed and the funds are transferred, several steps remain to ensure the investment is properly reflected and the investor's rights are in place.

• Update the cap table and share register to reflect the new shares issued to the investor
• File any required reports with the Companies Registry regarding the new share issuance
• Issue share certificates or confirmations to the investor as required
• Update the option pool and any affected holdings to reflect post-round ownership
• Confirm that any conditions to closing (IP assignments, contract consents) have been satisfied and documented
• Ensure the investor's information rights, board rights, and protective provisions are reflected in the company's governance practices going forward

These steps are the mechanics of closing, but they matter. An investment that is signed but not properly recorded creates gaps that surface in the next round or in an exit — exactly when the company needs its records to be clean. A legal advisor who manages the post-signing process ensures that the investment is fully integrated into the company's records and that the investor's rights are operational from day one.

For the investor, the post-signing checklist is the confirmation that the rights negotiated in the term sheet and the definitive documents are actually in effect. A review that ends at signing, without confirming the mechanics, is incomplete.