Many young ventures and startups explore the option of seeking venture capital to finance the next step in growth and expansion. This is a hot trend in business currently, and many companies are eager to start the process and lock down funding for new projects and for scaling up.
Venture capital is a complex process, however, strictly governed by SEC rules and regulations. There are a multitude of pitfalls along the way that could potentially ruin a business. It is critical that you have a skilled commercial law attorney at your side, guiding you through important decisions and next-steps.
Here are a few questions to ask when considering venture capital as a means of financing:
Is your company ready for VC? Do you have a business model that is attractive to investors and shows indicators of scalability, growth and return on investment? Do you have a management team in place that instills confidence that the business has momentum and is prepared to work with that magnitude of funding?
How will you attract investors? The SEC has strict rules prohibiting advertising or directly soliciting to attract venture capital. There are also strict rules regarding what kind of broker or finder you can use. A skilled business law attorney can help you develop a strategy for working with connections and qualified finders to attract VC.
Are you prepared to conduct adequate due-diligence? The relationship you establish with venture capital investors will last for years, and you will be directly accountable to these individuals. Do you know the right questions to ask and the right criteria to follow when selecting the right investors for your company?
Will you issue equity? Many venture capitalists are seeking preferred stock from their investors, and this is not always in the best interests of a young company that has the potential to quickly scale up. You need experienced guidance in evaluating the different kinds of equity, common stock or notes to issue, given your business and the value you would like to keep. You will also need an experienced negotiator on your side to ensure that you do not lose value as the founder.
Seeking and securing venture capital is a complex and sometimes delicate process, requiring the legal knowledge and experience of a commercial lawyer. Chenoweth Law Group is trusted by businesses and enterprises throughout the northwest. We help young companies evaluate their options for financing and build a strategy that meets the long-term growth goals of a company, given its specific operations, growth opportunities and industry demands. For more information, click here.