Future financings: Overview, definition, and example
What are future financings?
Future financings refer to any financing arrangements or capital raises that a business plans to undertake at some point in the future, typically through debt issuance, equity offerings, or other funding methods. These financings may involve bringing in new investors, issuing bonds or loans, or securing lines of credit to support the company’s growth, operations, or strategic goals. Future financings are often considered as part of long-term business planning and are typically outlined in investment agreements or corporate strategies.
For example, a startup may seek future financings through a series of venture capital rounds as it scales its operations over the next few years.
Why are future financings important?
Future financings are crucial for businesses because they provide the necessary capital to fund expansion, innovation, or daily operations. They also offer an opportunity for businesses to adjust their capital structure as market conditions evolve. For startups or growing businesses, having a clear plan for future financings is essential to ensure ongoing growth, the ability to meet financial obligations, and access to necessary resources.
For investors, understanding a company’s plans for future financings is important because it helps assess the long-term value and potential risks associated with investing in the company.
Understanding future financings through an example
A tech company planning to expand its product line forecasts the need for future financings. The company anticipates requiring additional capital every 18 months in the form of equity investments and debt financing. The company includes this information in its investor pitch and business plan to attract potential investors who understand the need for future funding rounds.
In another example, a real estate developer outlines plans for future financings to fund additional projects. This could include construction loans, partnerships with other investors, or issuing preferred stock to raise funds for upcoming developments.
An example of a future financings clause
Here’s how this type of clause might appear in an investment or financing agreement:
“The Company agrees that it may seek future financings, including but not limited to equity offerings, debt issuances, or other financing arrangements, in the ordinary course of business. The Investor acknowledges that the Company will have the right to pursue such future financings on terms and conditions that the Company deems appropriate, provided that such financings do not materially affect the rights of existing investors.”
Conclusion
Future financings are a vital part of a company’s growth strategy, helping secure the necessary capital to meet long-term objectives. Whether through equity or debt, planning for future financings ensures that businesses can adapt to evolving market conditions, fund their expansion, and maintain financial stability. Understanding and planning for future financings is important for both companies and investors to ensure successful, sustainable growth.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.