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That if you're looking to raise funding, being an LLC will be a continued point of annoyance that will become worse as the level of funding rises. You'll be forced to convert to an S corp as soon as any experienced angels or VCs become involved beause they simply won't do deals with you otherwise - which can be a big headache, legal expense, and drain on time.

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An S-Corp is actually worse from the VC standpoint than an LLC, b/c S-Corps don't require incorporation (DBA's can apply for and receive S-Corp status). This means it's easier to take the money and run.

Some VCs prefer LLCs because it gives them the risk-minimizing benefits of a corporation, while at the same time giving them a hand in managing the business (a la partnership form). HOWEVER, many VCs, especially the smaller ones, are unfamiliar with LLC law, and avoid it b/c they don't know about it. Some VCs prefer S-Corp because it ideally gives them access to the founders' personal assets, but in practice, a bankruptcy court will try very hard to deny this benefit.

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