…AND WHY ANSWERING “YES” IS IMPORTANT TO U.S. INVESTORS

There are many types of investment sources in the U.S. and this article does not purport to provide information that is applicable to all sources of funding or be exhaustive. The purpose of this article is to highlight some of the strategic factors that startups need to consider when they are developing their business & legal strategies to embark on the process of secure financing from U.S. Investors. 

Here are the Factors to Consider When Seeking Financing for Your Startup in the U.S. 

1. Consider whether strategic investing or financial investing are the best deal structures for your startup and the legal aspects of both.
2. Have a negotiation strategy that is specific to the deal structure you are seeking (remembering that even if your startup is new, you always have leverage).
3. Determine what is your startup’s exit strategy – both desired and alternative options – and the legal implications for you startup.
4. Make sure your pitch deck is legally compliant.
5. Know what U.S. investors are looking for when they consider investing:
   1. The Idea – while startup founders place a great deal of importance on the idea, the truth is to U.S. investors the idea is not as important as:
      1. The team – who is in your management team? Who on the team has a successful track record? Who will you bring on (or plan to bring on) that has experience in the startup space, such as the market, the industry, and the customer base.
      2. Growth metrics – what are the key metrics that will show investors that the startup will grow and be valuable at some point in the future.
      3. Realistic Passion – U.S. investors want startup founders who are passionate about their product or service while balancing the risks & practicality of running their startup.
      4. Credibility – know your startups numbers to maintain credibility with U.S. investors.

6. Willingness to Sacrifice – are you willing to starve for your startup. If U.S. investors don’t believe that you will fight to the end and invested all of yourself into your startup (including your quality of life), chances of U.S. investors investing in your startup drop considerably. Another way to look at ‘willingness to sacrifice’ is how committed you are to the success of the startup, and how much will you give up to see it through. If you are giving yourself and other founders a comfortable salary, this is very off-putting to U.S. investors as you are not seen to have “skin in the game” and your chances of receiving their investment drops considerably.

Willingness to Sacrifice – are you willing to starve for your startup. If U.S. investors don’t believe that you will fight to the end and invested all of yourself into your startup (including your quality of life), chances of U.S. investors investing in your startup drop considerably.

7. Determining the legal framework of your startup, such as:

1. • Type of entity C-Corp or LLC;
   • Types of equity –  how much control do you want? how much control are you willing to lose?;
   • Debt Instruments – convertible debt;
   • Rights of Investors and Restrictions on startup founders

8. Risks: this goes without saying giving the nature of startups. Some risk to consider when developing your business & legal strategies to secure financing from U.S. Investors are the following:

1. • Choosing the wrong investors
   • Losing control via the following:
     • Overly optimistic projections which can result in greater control by investors
     • Giving away too much equity to early
     • Dilution rights
   • Too many different deals with different investors

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The views expressed in this article do not constitute legal advice and legal information provided in this post should not be relied upon as legal advice. Please contact an Attorney for advice on your specific matter.

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