February 1, 2019 at 3:19 pm #4155
Having seen more than a few deals, both as a VC and as a large company acquiring startups – thought I would point out a few mistakes or misconceptions that I see consistently that founders could deal with to increase their overall chance at success.
In general these are around how to fundraise and the assumption is these are all things founders should deal with before they try to fundraise.
– get your stuff in order before you start to fundraise. The idea that you want money but you are not ready for it just wastes the time of the investors and dilutes your message.
– Founders – have your employment agreements done from day 1.
– if you have tricky legal issues – best to get a real lawyer to fix them.
– if you have multiple companies due to different locations or business lines. Make sure they are properly linked and that it is clear that the thing you want investment for is the really topco or holdco. Get all the linking and ownership sorted ahead of raising.
– have a proper cap table. Keep it updated.
– if you have taken money in, account for it on the cap table or clearly state why it wouldn’t be on the cap table. Have documents for the money.
– if you are all putting in your own money, that is still an investment. Should also be on the cap table or accounted for in some way. If the investor asks about total money raised – this figure is in that amount. You can’t just say we bootstrapped or that this money is not a part of the investment into the company. If you are loaning the money than account for it but note that normally an investor is not gonna put in capital to just pay back a loan from the founder. Usually that money would just stay in the company and the founder would deal with it in equity or some other way.
– if you have a hard time explaining a company setup issue, a cap table issue, a note or just anything related to legal or financial matters then assume that investors will view this negatively.
– even in small rounds investors will perform some level of diligence or KYC other investors that you have already taken money from. This is normal and you need to help facilitate it. Pushing back on it is not a good sign.
There is much more on this. Could go on forever but that covers a few.
The idea is have a clean company before you try to raise.