The Legal Lowdown on Startup Financing

Today was the Durham Lunch & Learn presented by RIoT at Smashing Boxes. The big topic was "The Legal Lowdown on Startup Financing". A great opportunity to join Jesse Jones, Founder and Lead Attorney of Fourscore Business Law, as he discussed the sources of financing available for startups and recommendations on which of those financing options to use. Jesse also gave the inside scoop on what is needed to be prepared before talking to an investor. Here are some key wisdom points of advice shared to support your career and startup endeavors:

• For your finance considerations, always start with what your end game is. Do you want to build and exit in 5 years? Building a sustainable long term company?
• Question strongly, do you really need outside capital to get to your end game?
• Most important reasons on why you may need financing:  Funding growth, but doing the growth with more speed to support sensitive "Time to market" considerations. Need the connections from the investors plus further validation of your company. Last reason and not the ideal is "Survival" to protect the company and keep it going through upstart challenging times.
• Top finance sources to explore: "Friends and Family"- People close to you want to help and believe in you and like a return. "The Crowd" like IndieGogo who want to buy into opportunity and get return on investment.  "Angel Investors" like RTP Capital looking to make a social impact, get associated with a rising star, and have good return. "VC" to help with bigger strategic needs and looking for big return. "Government and Banks" more institution investors.
• Main finance types. "Grants" that don't take stock and is free money.  "Equity" like preferred stock and common stock.  "Debt" loans/line of credits and convertible debt that need to be paid back. (Interest or equity). "Convertibles" (SAFEs)- Not debt does not get repaid with interest, but investor gets equity for the money given in company. Safe=Simple agreement for future equity
• The most important things investors look for:  Strong team with coach-able executives. A great idea, product/service, and a business they understand with good model that they can add value towards.
• The ideal founder & CEO mindset when looking for the right investor should be around their industry expertise, connections to other capital & relationships, and their own passion & interest in what you are doing.
• What can you do to increase your chances of raising money? Show them the money! Show them the success to date and opportunity ahead. Have your books and records in order. Be realistic with your valuation and what you are worth. Have a term sheet thought through on how you are looking to raise capital and what you are willing to give up.
• What is the best way to have success with investor pitch? Know your basics(team, problem, market, your finances etc), know the investors and their interests to relate to them with your pitch ie. Do they focus on BtB, Life Sciences, Consumer, Have confidence with a well practiced pithc. "Know your ask" like you need $1M to go from here to there and here is exactly how you will get there and the results aiming for ahead that shows big opportunity!
• How do you increase your chances of getting a "yes" from investors? Figure out how to de-risk your company to make it a brighter opportunity perspective for investors, apply to an accelerator, and focus on building a "real" business that has good revenue, growth, and profitability or clear pathway to good profit with compelling sustainable business model.

A special thanks to RIoT (Caroline) for putting on a great event and Jesse from Fourscore Business Law for presenting plus Smashing Boxes for hosting! 
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