The entrepreneurial ambitions of business people in California often depend on venture capitalists and VC firms investing in start-up companies. Entrepreneurs typically strive to make their best cases when asking for money, but their efforts might be sabotaged by overlooked issues or even rivalries among VCs that are beyond their control.
A capitalization table represents a spreadsheet record of a company’s previous financing rounds. While problems with this information might turn off an otherwise interested VC, an entrepreneur could take steps to improve the appeal of a cap table. Updating the document prior to every meeting could provide potential investors with a complete picture. It should display all funding rounds and equity grants. Employees also need to be on a vesting schedule and the cap table needs to account for anyone who has equity. Existing ownership issues might be more difficult to correct. A VC, for example, will not want to see someone who received an excessive share of a company after a small investment.
Overly high company valuations could discourage a VC as well. High valuation means that investments will produce smaller shares of ownership. A high valuation could also endanger the next funding round. VCs will want to see well-researched valuations based on reality.
A legal evaluation of presentation materials, valuation calculations and investment terms could help an entrepreneur spot problems prior to meeting with VCs. An attorney familiar with business formation and planning could offer insights about regulator compliance and suggest strategies for designing attractive terms that meet goals for all parties. An attorney could advise a person about how to structure ownership and evaluate funding proposals. Services such as negotiation management and contract writing provided by an attorney could alert the person to hidden liabilities and result in agreements that promote a start-up company’s success.