Condition precedent and subsequent

Hello startup superstars,

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Spring is just around the corner. The days are getting longer, the air feels lighter, and everything is coming back to life. It’s the season for fresh ideas, new plans, and making things happen. If fundraising is on your to-do list, now’s the time to tidy up your investment agreements. Just like spring cleaning, a little attention now can save you from headaches later. Let’s shake off the legal dust and dive into condition precedent and subsequent.

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What are condition precedent and subsequent?

Not every deal is final the moment you shake hands. Investment agreements come with conditions that decide when obligations start or stop. That’s where condition precedent and condition subsequent come in.

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A condition precedent must happen before the agreement takes effect, or before the funds are provided. Until then, everything is on hold. Think of it like waiting for a green light, nothing moves forward until the condition is met.

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A condition subsequent works the other way. It can change or even reverse the deal after it’s in place. If the condition occurs, the investor (or both sides) can ask for better terms or walk away.

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Why do they matter?

These conditions decide when a deal moves forward and when it can end. They help both founders and investors manage risk, stay protected, and set clear expectations.

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Here’s why they matter:

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No one commits too soon – The deal moves forward only after key conditions are met, like securing approvals or signing contracts. This prevents rushed deals that could lead to legal or financial issues.
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Investors stay protected – When a startup misses revenue targets, the investor might ask for a lower valuation or request changes to the deal. If the startup doesn’t secure the right regulatory approvals or meet compliance, the investor could pull out or ask for adjustments.
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Everyone knows the rules – Both sides understand exactly what needs to happen to start or end the deal, preventing confusion, disputes, and last-minute renegotiations.

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Dos and don’ts

Here are a few tips to make it work for you:

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Dos

• define conditions clearly and specify what exactly needs to happen and when
• set proper expectations, realistic timelines, and create achievable deadline
• align conditions with business goals to support both sides and long-term growth

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Don'ts

• commit to conditions you can’t meet or be overly optimistic about hitting them (always make sure to have a buffer)
• skip defining consequences for unmet conditions, leaving confusion about next steps
• neglect tracking and monitoring progress, causing last-minute surprises

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In a nutshell

Conditions precedent and subsequent are key to keeping your deal on track. They outline what needs to happen before the deal can move forward and what might trigger changes if things shift. Clear conditions help both sides manage risk, protect their interests, and stay aligned. By setting realistic timelines and tracking progress, you make sure the deal runs smoothly.

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Want to know more about disclosure letters or other investment essentials? We’re here to help. Reach out or follow us on LinkedIn for more insights.

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See you next month!

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