Venture capital legal advisor and
start-up founder Adam Slipakoff notes just some of the ways start-ups can make
the most of their investors.
Adam
Slipakoff, partner at Slipakoff LLP and founder of ModernLaw, spoke to members
of the State Bar of Georgia at an event called “Growth Companies: Legal and
Business Considerations” about some of the legal matters start-up founders
ought to consider as they put together funding for their next big projects.
Here are three tips he says could help investors:
1. Review your investment options.
Slipakoff went through some of the ways in which
start-up founders can raise capital to support their projects. “You can never
raise capital,” Slipakoff said, noting that businesses have historically found
ways to borrow enough money to start companies, and then have run them on cash
flow.
“Equity has all sorts of new elements to it,” he said.
Equity funding has a different set of guiding regulations to it, along with a
whole set of other responsibilities you may have to equity investors.
There are other options to consider, he added. “You
can get grants, you can get borrow money or get advances from vendors.”
2. Project an exit strategy.
Although everyone is looking to develop the next Uber,
Slipakoff says that most investors are looking for companies that have a plan
for future sale. Many of these venture funders are not thrilled about the idea
of having their investments tied up for decades.
“There’s no venture capitalist or accredited investor,
angel investor, who wants to invest in a company that’s going to last for 20
years. They all want to have the liquidity every five years,” he said.
Instead, Slipakoff advised founders to think ahead to
where they might be in three to five years – whether they’d be in a position to
have an IPO, be valuable to prospective buyers, or could consider selling the
company to employees.
“If you’re looking to have an exit strategy three to
five years out, that is exactly what the world is operating under, this
premise,” Slipakoff said.
3. Consider what kind of investors you want.
When investors are few and far between, it’s hard to
imagine being picky about the kind of investors you’d like, but Slipakoff noted
key factors that can shape your investment process.
The size of your investment team can shape the speed
and oversight with which you can make decisions as a start-up founder. “The
fewer you have, the easier it is to make decisions and move forward,” Slipakoff
noted.
That can come with a major trade-off. Slipakoff
cautioned that while a singular investor may improve efficiency in decision
making, it can also come at the expense of more hawkish oversight. Ideal, he
suggested, would be a team of 20 investors that put forth around $50,000.
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