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Avoiding errors that can discourage start-up funding

| Sep 4, 2018 | Business Law |

When an entrepreneur thinks about creating a new business in Louisiana, they may be concerned about how to best attract the kind of financing that can help their start-up grow and thrive. There are a number of reasons why new start-ups can have difficulty getting the funding they seek from venture capitalists. In some cases, the process of fundraising itself can hinder the likelihood of success. Someone entering a new business can tailor the process in order to enhance their ability to attract vital funding and support.

In many cases, venture capitalists will want to look at the capitalization table, a document that indicates which people and companies have an ownership stake in the company. Sometimes, the document itself can have inherent problems. For example, it may be outdated, may not show the results of other funding rounds or may have broken models for equity stakes. In other cases, the problems can be more fundamental. For example, early investors may have received significant stakes for relatively small sums. Other concerns can be raised if the founders have made verbal promises of equity stakes that are not reflected in the document.

Sometimes, the presentation about the company can also be the source of problems. While start-ups don’t need to have flashy presentations, it’s important that any materials are well-designed and easy to read. Spelling and grammar mistakes can also raise red flags about the seriousness and potential of start-up founders.

There are a number of issues that can arise with the valuation of the company as well; in many cases, a venture capitalist may argue that the company is overvalued. When working to develop a start-up and secure financing, founders can benefit from working with a business law attorney. A lawyer can provide guidance in developing contracts and other documents that protect the business and help it to succeed.