Startup Funding Espresso -- Reps and Warranties

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

In startup investing, investors take in information from the startup about the product, team, financials, revenue, and more.

This information does change rapidly in the startup phase of the business. 

One method of assuring the investor the information provided is true and accurate is for the startup to sign a Reps and Warranties contract.

This is often tied to the diligence provided.  

A Reps and Warranties contract basically states that everything provided in the diligence is true and accurate and nothing material has been omitted.

If it later turns out that there’s a material difference between the business and the diligence, then the Reps and Warranties contract provides legal recourse to the investor for recovering any damages.

For example, if the financial statements indicate there’s no debt in the business, then the investor assumes the business is debt-free.

In this case, if the startup indeed has debt, then the investor can take legal action against the startup.

Some investors demand such a contract to be signed to ensure they have the full picture of the business.

A startup can strengthen their case if they sign a Reps and Warranties contract on the diligence provided.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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