SEVEN ROOKIE MISTAKES STARTUPS MAKE WHEN RAISING MONEYBY COLORADO STARTUP LAWYER

INFO@COLORADOSTARTUPLAWYER.COM

8/23/2016COPYRIGHT MCCARTHY LAW, LLC

WHY IS CAPITAL SUCH A BIG DEAL?• Proxy for Interest• Shows the Community Values

Your Company• Lets You Mobilize Development

Resources• Almost All Tech Companies that

Succeed Raise Some Capital

SO MUCH SIGNALING

•What is Signaling?•Why Does it Matter?

MISTAKE #1: PICKING THE WRONG INVESTORS• It’s not just about total money• Once you raise, it’s not just your

business anymore• Raising capital for a successful

startup is more akin to a marriage than a fling

MISTAKE #2: WRONG INVESTMENT VEHICLE• More than a few ways to raise (see our 21

Ways to Raise at ColoradoStartupLawyer.com)

• But which investment vehicle you choose means a lot for your trajectory, especially early

• Raising capital is like searching for the proper route on Google Maps. There’s not one right way, but there’s lots of wrong ways

MISTAKE #3: BUSINESS NOT SET UP PROPERLY• Must have authority to raise capital• Must follow basic corporate governance • Must do this BEFORE you go out to raise

money

MISTAKE #4: CAN'T ANSWER BASIC QUESTIONS ABOUT BUSINESS OR INDUSTRY

• Most sophisticated startup investors have pretty good BS detector systems

• Competition? Industry? • If you don't do your homework, you will

fail this test

MISTAKE #5: NOT READY FOR INVESTMENT• It takes a lot of work just to get a meeting

with VCs and investors• If you get a meeting with an investor

before you have anything worth pitching, you're wasting everyone's time and likely killing your own future chances of raising

• Need an MVP & traction before investors will give you the time of day

MISTAKE #6: IGNORE SECURITIES LAWS• Don't try this at home• Raise your hand if you know what a Form

D is and a Form ID and when you have to complete them

• Raise your hand if you can explain the difference between a Rule 504, 505, 506(b), and a 506(c) capital raise

• Securities laws apply to all capital raises

MISTAKE #7: SAME LAWYERS AS INVESTORS• Lawyers are dirty• But you need a lawyer who is on your

side, not your investor's side, and not on your accelerator's side.

• Conflicts of interest are rampant in the startup community -- there's backscratching and borderline bribing going on all around

BONUS #1: ADDITIONAL TIPS• Terms of deal matter more than gross

amount raised• Anything less than religious zeal for your

startup means likely death• It's a real-deal hustle to get startup

capital• If you can't convince the investor that

you're smarter and more motivated than they are, you probably won't get their mo ney

BOTTOM LINE• Raising Capital Ain't Easy If You're Just

Getting Started• Easiest Way to Get Money Is Not To Need

It• Companies with Real Growth and

Traction Get Capital

SEVEN ROOKIE MISTAKES STARTUPS MAKE WHEN RAISING MONEYBY COLORADO STARTUP LAWYER

INFO@COLORADOSTARTUPLAWYER.COM

8/23/2016COPYRIGHT MCCARTHY LAW, LLC