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Concept Stage:
Business Structure:
Make it appeal to investors.
By
Gerald Youngblood and David Mackie
Managing Partners, seedstage.com |
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The appropriate
business structure is an "S" corporation or a "C" corporation.
Don't get fancy. You'll have enough difficulty getting across the value of your concept
without creating a complicated or unacceptable business structure.
Why
It's Important
Venture capitalists look
at who your investors are and how your company is structured, and they want to find
that you're in the norm. Also, when they put money into your company, they want it
to carry the company forward - not have the money go toward paying debts to your
family and friends.
How It
Works
Begin with a law firm
that deals with venture capitalists day in and day out because it's so easy to make
a misstep at this point. Here are some things to watch out for. You don't want a
limited partnership or offshore headquarters. You don't want to create complicated
relationships with your friends and family, like giving Aunt Ethel a veto. And you
don't want to be locked in to paying back your friends and family at the wrong time
or in the wrong way. An investor will want to see that whoever put in money before
he did, can't get out before he can. |
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| DO: |
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- Find a law firm that
understands what venture capitalists want.
- Make sure that the
exit strategy for an investor can be as good as it is for your earlier sources of
money.
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| DON'T: |
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- Plan on using financing
rounds to pay back your family and friends.
- Involve a lot of
your family and friends.
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