Things Entrepreneurs Should Avoid When Raising Capital

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34 points·tilt··5 comments

I think it's worth also reading http://ospflor63.stanford.edu/upload/An-Introduction-to-Stoc... which is quite informative.

_should_ being the identifying word here. Good luck raising money under any of the recommended terms this article points out. Any VC would walk away, as it betrays their fiduciary responsibility as an equity firm.

What, in particular, stands out to you? Aside from vesting, everything suggested seems pretty standard to me (for a quality investor, that is).

Sorry, my initial comment wasn't the clearest.

What I meant was: if you're raising seed capital, it's very hard, if not impossible, to demand 1X or non-PP for investment funds, because you have zero leverage. Your business model isn't proven, your product is likely conceptual, you're just going on the idea. Very high risk for a VC, so they'll want protection.

If we're talking about Series B or C, that's a whole different ballgame.

The term sheet is a negotiated instrument. In rare cases (Facebook, Google, etc.) VCs don't have the leverage to have these terms in the deal and still get the deal. In those circumstances their fiduciary responsibility is to try and get in on the deal they know will likely go big, even if they can't get everything they want.

Point is, traction and growth are very sexy for a VC.

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