Venture Finance 101

Three key take-away messages  from a discussion with a team of GR tech startup founders last week following an introductory workshop on venture financing options.

 

Becoming investor ready

Taking money from others requires your personal and your Startup’s compliance with all corporate and securities laws applicable in your country of residence. Your company’s organizational structure must be clear and the agreements in place with employees, contractors, existing investors, must exist and be in top shape.

Important questions like, do you have your books in order? Is your intellectual property been properly assigned and protected? Do you have all the appropriate agreements in place with your employees, contractors, customers and previous shareholders? Need to be answered fast and accurately. Furthermore, if an investor requires a legal opinion confirming any of the above, you should be able to provide one without delay or expenses.

As a startup founder with increased understanding of financing options and mechanics, you will be comfortable that there are no difficulties in your choices in regard with financing instruments, intellectual property matters, stakeholder agreements and other key foundational and due diligence materials.

 

Creating your finance offer

Just as your product or service offer towards your customer must be compelling in order to close sales, your offer to sell equity to investors must be equally persuasive. The form of investment (your ask), including terms & conditions, and company valuation will affect the appetite for it, by investors.

To avoid cold feet, it’s important that you send these offering materials promptly upon request. You may of course need to negotiate terms and conditions, but it’s better to have an offer you can submit to an investor at a short notice which needs to be aligned with other offers you made recently.

Your aim is to be in a position to close when an opportunity to receive funds from an investor arises.  Access to seasoned practitioners (e.g. lawyers – tax advisors – accountants) is important, since they understand current deal terms and best practices in select countries and jurisdictions.

 

Commitment to marketing your offer

Even if you’ve done the hard work to gain the foundational knowledge about venture financing options, cleaned up your corporate house and created a compelling offer, you still need to make the largest commitment of all behind this, which is your time.

If you need to raise a financing round to scale your business globally, you also need to invest up to 50% or more of your time as a founder to drive and execute on this project for a time period of three to six months, or even longer in some cases.  Unless you already live in one of the venture finance capitals of the world, please bear in mind that you will also need to travel quite a bit, including several roadshows in the above timeframe.

Of course if as a founder you take your focus off day-to-day operations, you need to trust your team to be able to continue to drive the business at full capacity without your full-time attention. If you have a team that can do this defectively and efficiently, your chances of raising  venture financing will be greater. However, if you don’t have that team, it emphasizes why you may need more capital to upscale  your team’s strength.

Want to learn more on how-to-do, drop us an email and we will be happy to share our knowledge and insights with you!

 

For Hippocampus.io,

Christos Lytras – Managing Partner

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