Here’s a brief overview of what entrepreneurs and owners of emerging companies should keep in mind as they seek investors for their businesses, according to Gunster securities law leader David Scileppi.
How to raise early stage capital and mitigate potential legal problems
There are a lot of legal issues to consider in early-stage capital raises.
We’ve had startups come in for their follow-on rounds of financings who had just “winged it” for earlier rounds.
Sometimes it works out and sometimes it doesn’t.
If it wasn’t done correctly, sophisticated investors will refuse to invest in later rounds.
The right legal advisor can help you avoid those issues.
Also, be choosy with who invests in your company.
Not all money is created equal. Some investors bring expertise in addition to capital.
Investors who have the resources to either fund additional rounds or introduce you to their network are valuable investors.
So get your pitch in order, including a budget, but not necessarily a financial model.
Every sophisticated investor knows that projections are inherently optimistic and incorrect.
It is way more important to show investors that you know how to use money wisely.
In any event, it is imperative that you involve someone with financial experience on your management team to get potential investors comfortable with investing in your company.