Hello Matt,

I attended the Santa Clarita Entrepreneur conference and found the investment panel very helpful and liked the way you presented information. I’ve written down a few questions that I was wondering if you could help me out with.

1) Which business structure is most appealing to investors?

**** If by “investors” you mean institutional investors than this is a fairly straightforward answer. A “C” corporation is generally a requirement for investment by institutional investors and, as a general rule, a Delaware C corporation is a good bet. You will also hear arguments for the C corporation of the particular State in which you are doing business but I think the Delaware C gives you the most flexibility and will generally save your company money in the long run as most attorneys, regardless of location, are familiar with Delaware corporate law. The is a long list of reasons why the C is important for any company that could grow to have a large number of investors or which might take institutional investment. This list is probably too long and complicated to deal with here but most corporate attorneys will be familiar with the issues. If you are talking about individual investors they may actually prefer a pass-through corporate structure which allows you to pass through your losses in early years directly to them to write off. If you believe you will never be at a point where you will need institutional investment (or go public) than you can look at these pass-through structures (e.g. partnerships or LLC). It is possible to convert from a pass through to a C corporation later, but in my experience, it is simply cheaper and easier to start off with the right “long term” structure from the beginning given your long term goals for the company. *****

2) Should I have my structure set up before investors or set if up afterwards according to their suggestions. I don’t want to spend money on an LLC and then the person interested in investing says “we’d like you to use an S-corp.”

**** If at all possible you should set it up for the long run and convince the investors it is in their best interest (see discussion above). In some cases, I’ve seen investors push for a pass-through entity to begin with and acknowledge that there will be cost of conversion later. That is a business decision for you and your investors to discuss. *****

3) Does investor recommend team members? - I had this question written down but i heard in your interview on the Frank peters show from your web site about how you will bring in bring management talent to get the company up to speed. Is this common practice or unique to your company? (as you mention in that interview: “building integrity and credibility” - this is really something I’m interested in)

**** Most investors (other than my organization) would like to see a significant representation of the management team before making an investment. The angel organizations are helpful with advice and governance but they will want to meet and diligence the key leadership of the company that can take it to “the next stage”. Institutional investors will often be helpful in sourcing key senior leadership positions but, again, they will want to know that most of the team is on board. As far as I know, our group is unique in investing significant resources while becoming part of the team. ******

4) Tech or no tech? I thought I heard you say during the panel you said that you weren’t interested in tech but during the frank peters show during interview you mentioned interest in tech based products.

***** Sorry for the confusion! I think it may relate to the difference between “high tech” and “tech”. We are not particularly experienced with research-science based cutting edge technology - e.g. we are not likely to be helpful working on nano-technology, fusion, biotechnology, etc. On the other hand, all of our investments are “technology” oriented but tend to be IT, software, Internet related technologies, etc. ****

5) Do you know of a link where I can see a sample power point presentation / pitch?

**** There are two blog entries at www.mvmpartners.com that you should check out: “Why You Shouldn’t Write a Business Plan” and “The Perfect Powerpoint Pitch”. *****

In the news section of your website there is an announcement for a presentation that you did: Date:Thursday, July 26, 2007 Location: Knobbe Martens Olson & Bear, LLP “Business plans don’t raise money… what does?” - Do you have planes to give this presentation again or does a recording exist of this one?

**** I give this presentation from time to time. The “meat” of it is available for download in a link from the blog on this topic. ****

7) Does personal credit history effect you ability to attract investors or a management team?

**** Not necessarily. In general, these people will be looking for evidence of your good character and trustworthiness. There are lots of reasons why someone may have credit history problems. As you get to know investors or potential management partners find a time - not immediately, but fairly early in the process - to disclose the issues and talk about it. That will give them comfort that you are operating in good faith. *****

A web site will cost more that i thought and I want to get patents on my ideas so I’m realizing that I may need investors sooner than i thought.

**** Good luck! ****

thanks for any information you can still give me,
-Todd Knapp

Trackback URI | Comments RSS