When Investors funds are transferred

March 31, 2024

by a searcher in London, UK

I am close on agreeing heads of terms and wanted to understand when are the investors funds usually transferred? early in DD or at the end before closing?

I also get the following question from unsophisticated investors (family and friends), what guarantees the funds raised will be used to buy the business?

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Reply by a searcher
from University of Pennsylvania in Seattle, WA, USA

1.) My experience is that investors fund the deal right before close but all investors have signed commitment letters earlier in the process that they agree to fund under the terms of the deal. The bank will usually want to see a funded account the week of close. 2.) I put together a subscription agreement with T&Cs for the deal. The investors sign the agreement and are buying equity with their purchase. The terms of the deal describe what the uses of capital are. When the funds are wired in, they are wired to the business account of the company formed to make the acquisition. If there are concerns, you can add a clause that if the transaction is not consummated, the funds will be returned.

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