There’s no shortage of advice for start-up companies to follow, but in my experience working with emerging technology companies I’ve noticed something that’s just as important: there are certain pitfalls that bog down entrepreneurs, costing them money, time and ultimately a chance to break through the clutter. Every new venture has limited resources – and limited time – to get off the ground, and anything that needlessly burns cash or slows progress limits the chances of making it to the next level. Here are five ways to avoid the most common traps that snare new companies.
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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. *****
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I once had a seasoned VC board member tell me that the nastiest divorce is often cleaner than most partner breakups.

Startups with more than one founder are more likely to succeed than those with only one founder: double the mind share, double the work done, double the domain experience and the ability to bounce ideas off of each other are benefits that are hard to argue with. If having a partner is such a good thing, then why do they often go bad? Continue Reading »

Founder / entrepreneurs are among the most intriguing people you will ever meet. In order to overcome the almost impossible odds of starting a business they have to possess certain traits: extreme confidence in their vision, creativity, endurance, enthusiasm, etc. Given the entrepreneur will hear “it will never work” so many times at the beginning they have to be stubborn and unyielding in the face of criticism. All of these traits are typically found in founders who successfully push their companies from an idea to a working product or to a first set of customers. Unfortunately, these same traits are often what causes a founder to fail as a leader in the next chapters of a company’s growth. This note is about what entrepreneurs should be focused on as they consider taking their companies to the next level (more staff, outside investment, etc). Continue Reading »