HadfieldMossman635

alvin donovan - You should understand First Round Financing terms and conditions that your investor will probably use in structuring their investment in your business.

There are different nuances to take into account based on whether you are talking with a PIPE Fund, equity finance firm, venture capital angel investors, or hedge fund investors. These investors often use different structures and even have different exit strategies.

alvin donovan - You need to think of financing just like a chess game. You have to think A few steps ahead. Many organisations don't raise investment capital financing in a single round without having to raise financing in 2 or three subsequent rounds. First round financing therefore becomes essential for several reasons.

1. If you hand out a lot of equity (your company's common or preferred stock) inside the first round, you have greatly diluted the ownership position of one's Management Team. For example, if you give up 45%, and you're simply likely have to subsequent financing, then your result will probably mean giving up voting control of your organization to raise more capital. Obviously, when you can convince subsequent round investors to provide you with Super Preferred voting rights then you can have the ability to maintain voting control, although you may loose majority ownership within the company.

2. Venture Capital firms typically like to control the whole deal. What this means is if you stop trying to much in the first round financing, you'll be at their mercy in subsequent rounds. They are going to make use of the fact that you're eager for more cash for your company. They are going to also provide the deal structured so that in the event you refuse to quit control in a subsequent financing round, they shall be capable of taking over the company and replace management. They can try this by structuring the financing terms with a number of different "default clauses". For example, in the event you default on the payment or don't meet certain goals that have been established.

3. Additional problems with not understanding all of the implications of first round financing is it can restrict your skill to raise subsequent financing. For instance, let's say anyone with a investor(s) that provided the original funding have a disagreement and you also decide to go elsewhere for further funding. This second round investor will examine all documentation about the initial funding you received and may also want to talk to the very first group that funded your organization. There could be restrictions on subsequent rounds that scare other investors away. After all restrictions like, rights of first refusal, Security Agreements running in favor of the original investors and clauses that prevent you from giving other investors more voting control or a better stock price compared to the first investor group.

Private Equity firms have very skilled management teams, advisory boards and armies of lawyers at their disposal. They should be certain that they have treatments for subsequent financing rounds so they are not diluted themselves.

alvin donovan - You'll want competent a lawyer to counsel you throughout the first round of financing. It is rather important to know the impact subsequent financing rounds may have on management's stock ownership and voting control. That is why you need to carefully analyze and understand the first round of financing. Otherwise properly negotiated and understood, it may have devastating effects on your own subsequent rounds of financing or your ability to even obtain subsequent financing.