Warnings about investor limitations!
Dave Berkus
CogLab UC Berkeley
Hello CogLab,
Some of you may be seeking investors for your business, something that has been difficult in 2024. Experts predict that early 2025, the floodgates will open. So here are a few warnings about corporate structure and other issues if you are looking for investor money... Please read on...
Tuesday, December Third, 2024
Warnings about investor limitations!
Some businesses just can’t fit within the angel capital or friends and family model for raising funds. Sooner or later, you may need to seek venture capital and accommodate the needs of the venture community in negotiating the terms of an investment.
What VC’s can and cannot do
First, VCs in general cannot invest in ‘S’ corporations or limited liability companies (LLC’s). This is only a minor problem in that both forms can convert easily into ‘C’ corporations at low cost and little consequence.
And what VC’s worry about
More importantly, VCs will worry over several issues when looking at a company and deciding about an investment.
First: Is the price paid for shares by previous investors excessive, creating a post-money valuation too high for the actual value of the company? If so, the VC will contemplate a "down round” - that is: offering an investment where previous investors find their investments instantly worth less than their original value, even if the investments were made at high risk and years earlier. No one wants to face this, but the need for money and the possible overpricing of the first rounds may have created an unsustainable valuation.
...To read the rest of this insight on Dave's blog, click here...
Note: Images in this newsletter and blog created by Dave using unique prompts with DALL-e or Midjourney AI. See link for prompt.
You can purchase this and more than 350 insights contained inside the books and audio books in the Berkonomics series at my Amazon store by clicking here - but of course only after reading this week's insight.
EVENTS, TV and VIDEOS
Dave's YouTube channel:: "Startup Masterclass from Dave Berkus"
Dave's TEDx talk: "Smiling at success, laughing at failure."
The"Berkus Method" of valuing early stage businesses
SELECTED BERKONOMICS POSTS
* You are watched, mostly when decisions are tough.
* The lion and the ant: A managerial lesson.
* OUCH! If only I had learned this before losing millions.
THIS WEEK'S FEATURED BOOK BY DAVE: "Advanced Berkonomics."
Available as a Kindle book and as a soft cover book on Amazon's bookstore. See link below.
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