Understanding what exactly happens between signing and closing in an Investment Transaction

This article is a part of a series called “Understanding the Nuances of Signing and Closing In Investment Transactions”.

Last week we discussed:

• What does signing date mean in an investment transaction;
• What date is to be considered as the signing date, if parties have signed the agreement on different dates; and
• Why most agreements have separate signing and closing dates.

You can read the article here.

This week we aim to discuss exactly what happens between the signing date and the closing date in an Investment Agreement.

“The following entrackr link

Funding and acquisitions in Indian startups this week [21 Mar-26 Mar]

https://entrackr.com/2022/03/funding-and-acquisition-in-indian-startups-this-week-21-mar-26-mar/

states in its introductory sentence that – “This week 38 Indian startups raised funding, of which 25 received a total of about $600 million”.

Now, let’s try to understand the above statement from a pre-closing perspective in investment transactions, i.e., to understand the conditions required by the startups to receive the funding from their investors, on the closing date.

In any investment transaction, generally a financial, legal and if required a technical due diligence is undertaken by the advisors of the investors. The said due diligence reports generally provide for a list of issues (financial, legal) that are discussed between the company and the investors, along with the relevant advisors.

These very issues that arise from the said due diligence and are critical to investors are included in the investment agreement as conditions precedent or commonly referred to as the “CPs”.

As these CPs generally require time to be completed. Hence, to ensure that all parties to the investment agreement are contractually bound by its terms, the investment agreement is signed/executed by all parties to be bound by the terms of the investment agreement and to undertake all actions therein.

This step also enables the company to provide a base document to third parties (including banks) at the time of the company applying to such third parties, for obtaining approvals as may be required, for completion of the CPs.

It is pertinent to note here that, it is because of these very conditions precedent that are required to be fulfilled (mostly by the Company and the promoters), to the satisfaction of the investors, that there is a gap between the signing/execution date and the closing date, in an Investment Agreement.

As the time period required to ensure completion of the CPs to the satisfaction of the investor, is the very time period between the signing date and the closing date, certain clauses are included in the investment agreement, for the company to maintain its status-quo (financially and otherwise), to ensure that the company operates as per its ordinary course of business.

Once the CPs are successfully closed to the satisfaction of the investor, the parties then proceed to close the investment agreement.

Hence, basis the above understanding now, let’s revisit the statement from the link above:

“This week 38 Indian startups raised funding, of which 25 received a total of about $600 million.”

So now when we read the above statement, we can understand that – this week 25 Indian startups successfully completed the conditions precedent in Investment Agreement, to the satisfaction of their respective investors, to receive funding, in lieu of the said startups issuing securities to their investors.

This article is a part of a series called “Understanding The Nuances Of Signing And Closing In Investment Transactions”.

Stay Tuned for the next part where we will discuss what are conditions subsequent and why can such conditions be completed post-closing of an investment transaction.