Stop Leading Capital Raises With an NDA

Stop leading with legal theatre

If you are raising capital in Australia, my view is simple: leading with an NDA is usually a mistake. It slows the raise, signals inexperience, and often distracts from the real legal question — whether you are dealing with investors under the right Corporations Act exemptions in the first place.

Busy investors do not sign NDAs just to hear a first pass. They want a short, credible summary, a clean cap table, current financials, and a clear statement of what exemption you are relying on before they spend time on you.

That applies whether you are speaking to angels, family offices, high-net-worth individuals, or private lenders. Shane St Reynolds has worked around capital raising long enough to see the same pattern repeatedly: the deal does not die on “confidentiality”; it dies on weak preparation and the wrong first documents.

The real first gate is not secrecy. It is investor classification.

Before you circulate anything substantial, work out whether your offer is being made under a disclosure exemption in the Corporations Act 2001 (Cth). For many private raises, the practical question is whether the person is a sophisticated investor or a wholesale client, or whether another exemption applies.

Two provisions get used constantly and are often muddled:

• Section 708 deals with circumstances where an offer of securities does not need a disclosure document such as a prospectus.
• Section 761G deals with whether a person is a retail or wholesale client for financial services purposes.

They overlap in conversation, but they are not the same thing. People use “wholesale” loosely when they actually mean a disclosure exemption under section 708. That confusion causes sloppy deal documents and bad advice.

A common route under section 708 is the accountant's certificate showing the investor meets the sophisticated investor test. The certificate must come from a qualified accountant and is only valid for a limited period. Do not rely on an old one sitting in someone’s inbox.

Another route may be the 20 investors / AUD 2 million in 12 months small-scale offering rule in section 708. This is where many businesses get careless. They count only the people who invested, not the people to whom offers were made. That is dangerous. The rule is about offers, and the anti-avoidance provisions matter.

The counter-intuitive point most founders get wrong

The instinct is: “Our information is valuable, so we need an NDA before we say anything.” Usually wrong.

At the early stage, your risk is not that someone will steal a vague summary of your business. Your risk is that no credible investor will engage because you have created friction before trust. Most investors see an NDA-before-summary request as a sign you do not understand deal flow.

There is also a harder truth. If your core value can be copied from a two-page overview, an NDA was never going to save you. What protects you is one or more of these:

• speed of execution;
• control of supplier and customer relationships;
• security over assets where relevant;
• trade secret discipline around the genuinely sensitive material;
• proper IP ownership and assignment documents;
• and staged disclosure, not indiscriminate disclosure.

That is why I prefer a layered process: short teaser, investor filter, one-page information memo, then deeper diligence material only after the investor is properly identified and the conversation is real.

Use this three-document sequence instead

For most private Australian raises, this sequence works better than “Sign this NDA first”.

1. Teaser: one page, no trade secrets, enough to show sector, revenue model, capital sought, use of funds, and high-level financial snapshot.
2. Investor status check: ask which exemption or investor category is available, and request supporting material where needed.
3. Information memo: 1 to 3 pages first, with fuller deck or data room access only after the investor clears the threshold and shows genuine interest.

This is not about being casual with confidential information. It is about disclosing in layers. If someone is not willing or able to confirm they fit the relevant category, they should not be in your process long enough to see the crown jewels anyway.

What your first-page memo should actually contain

Most information memoranda are too long and too promotional. Your first-page version should answer the questions an experienced investor asks in the first five minutes.

• Entity details: full legal name, ACN, and whether the raise is at company level, unit trust level, or project SPV level.
• Amount sought: the target raise in AUD and any minimum subscription.
• Security type: ordinary shares, preference shares, convertible note, SAFEs if used, units, debt, or secured loan.
• Use of funds: specific allocation — stock, refinance, acquisition, working capital, construction, ATO debt, equipment.
• Existing debt: lender names if disclosable, security position, and whether any General Security Agreement or mortgage already exists on the PPSR.
• Financial snapshot: revenue, gross margin, EBITDA if appropriate, cash at bank, and current liabilities.
• Offer basis: the exemption or category being relied on under the Corporations Act.
• Timetable: target close date, conditions precedent, and what documents are already available.

If you are raising debt, include whether security is first-ranking or second-ranking. In Australia, that is not a detail. It often decides whether the deal is fundable at all.

The document many businesses forget to check before speaking to investors

Run a PPSR search before you ask anyone for money. The Personal Property Securities Register can reveal existing security interests over company assets. If there is already an all-assets security registered by a bank or private lender, say so early.

Why this matters: businesses often present inventory, receivables, plant, or even intellectual property as available security when an earlier facility already covers those assets. An investor who finds that out late will question everything else you said.

Also check your constitution, shareholders agreement, unit trust deed, or existing loan documents for restrictions on:

• issuing new shares or units;
• borrowing limits;
• director approval requirements;
• pre-emptive rights;
• related-party transactions;
• and transfer restrictions.

If you need board approval, member approval, or a deed of priority, say so upfront. Delay kills momentum.

A practical screening script you can copy

Use this before sending detailed material:

“Before I send the fuller memo, I need to confirm the basis on which we can discuss the offer. Are you investing as a sophisticated investor or otherwise within a Corporations Act exemption? If relevant, can you provide a current accountant’s certificate or confirm the exemption you are relying on? I can send a short summary first, then open the data room once that is confirmed.”

This wording does two useful things. It sounds competent, and it moves the legal filter to the front where it belongs.

The red flags that tell me a raise is not ready

• No current financials: if your management accounts are months out of date, fix that before the raise.
• No clean cap table: if no one can say exactly who owns what, stop and reconcile it.
• Unclear ATO position: if there is tax debt, disclose it early. ATO arrears can affect serviceability, security, and settlement timing.
• Undocumented related-party loans: investors treat these as hidden risk until documented and explained.
• Inconsistent story across documents: if the deck, term sheet and financials say different things, confidence disappears.
• NDA obsession: if the biggest concern in week one is secrecy rather than structure, classification and repayment or return, the raise is probably immature.

What to do in the next seven days

1. Prepare a one-page teaser and a one-page information memo.
2. Identify the exact entity raising funds and confirm its ACN and ownership structure.
3. Choose the likely offer pathway under the Corporations Act 2001 (Cth) with proper advice where needed.
4. Get current management accounts and a clean cap table into one folder.
5. Run a PPSR search and review existing loan and shareholder documents.
6. Draft your investor screening email using the wording above.
7. Only then decide whether an NDA is needed for later-stage diligence on genuinely sensitive material.

That order matters. Process is part of credibility.

If you need help structuring a raise or preparing material investors will actually read, start at Poseidon Finance. If you want broader commentary from Shane St Reynolds on law, justice and public issues, see shanereynolds.com.au. General information only.

Ready to raise capital properly?

If you want help with a private capital raise, investor materials, or sorting out the legal and commercial issues before you go to market, book a consultation at https://shanestreynolds.com/contact.

You can also email [email protected] or call 08 6263 6236.