Glossary - Direct Investment
Direct investment refers to an investment in a company by an investor, typically an individual or an institutional investor, by directly purchasing shares of that company rather than through a secondary market. This form of investment allows the investor to have a closer relationship with the entity they are investing in, often leading to a more significant influence on company decisions.
Also known as
- Direct equity investment
- Private investment
Use cases examples
- Share Purchase Agreement: The Investor agrees to make a direct investment in the Company, purchasing 1,000,000 shares at a price per share as specified in Annex A, subject to the terms and conditions set forth in this Agreement.
- Private Placement Memorandum: The Company is offering up to $5,000,000 of its Common Stock to accredited investors through a direct investment, as outlined in the terms and conditions within this Private Placement Memorandum.
Considerations for investors
- Due diligence is crucial to assess the company's value accurately and the potential return on investment, considering the direct investment leads to closer ties with the company.
- Understanding the rights and obligations that come with the direct investment, including any provisions relating to future funding rounds, governance, and exit strategies.
Considerations for founders
- Maintaining control over the company post-investment, as direct investments might come with conditions that could affect the founder's decision-making power.
- The potential for strategic partnerships with investors who have a vested interest in the company's growth and can provide value beyond capital.
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