Forums: Discussions for entrepreneurs and small business.

ATXlonghorn,

I totally understand your situation. However, I strongly suggest that this is not  the kind of thing you want to "do it yourself".

An attorney should be involved. One way to optimize the relationship is to know what you want to accomplish.

Since legal fees are a part of doing business - you should include them in your capital requirements.

Is there such a thing as a broker to help find funding? We have a young company looking for funding.  www.tradeaddresses.com

James,

There are loads of people who claim to be in the "finding capital" business and may promise the moon - but I advise using extreme caution and due diligence before engaging with one.

1. Any one (besides an owner/officer) of the company who engages in the offer or sale of a security -MUST be a licensed broker-dealer. Paying a commission to an unlicensed "finder" can create liabilities for the company.

2. We've determined that the people (you and your team) are the most important part of the funding decision - especially in early stage companies. Capital sources want to sense your commitment and feel your passion. This isn't easily conveyed by a third party, so you will have to be a key participant in the acquisition process.

3. Since early stage companies are usually seeking relatively small amounts and they may be harder to acquire, a lot of reputable brokers shy away from these situation.

If you want to discuss your situation, feel free to drop me a PM or contact me directly.

All the best,

Hi brante. It’s common practice for a VC to initially loan the money to a portfolio company rather than investing it in a straight equity deal. While this substantially reduces the risk for the VC, it doesn’t limit the VCs ability to partake in the company’s upside potential if the deal is based on convertible debt.

While convertible debt does not necessarily have to convert into equity, it’s common that VCs reserve the right to convert debt into equity if or when (i) the portfolio company continuously reaches or exceeds its financial forecast; (ii) the portfolio company undergoes later-stage equity financing, (iii) the company is subject of a merger or acquisition, and (vi) the company intends to go public.

In reality there’re many more facets to convertible debt financing, but for the purpose of helping you develop an initial understanding of the matter, I’m trying to keep this simple. I hope this helps.

Cheers!

Karl