I've been helping entrepreneurs raise capital as a securities lawyer for 17+ years, and there are certain fundamental mistakes that I've seen entrepreneurs repeatedly make. Accordingly, I thought it would be helpful to share three basic tips for entrepreneurs in connection with raising capital. This is part two of a three-part series.
Tip #1: Only Sell Securities to "Friends & Family" as a Last Resort. Many entrepreneurs initially reach-out to friends and family as a source of capital. This is understandable, but generally a mistake for two significant reasons: first, friends and family investors are often not "accredited investors" under SEC Rule 501, which generally triggers tricky compliance and disclosure issues (as I discussed in detail in part one of this series) and second, they are inappropriate investors from a business perspective.
Indeed, the ideal investor is an experienced, sophisticated angel who can add substantial value through his or her domain expertise and/or rolodex. A sophisticated angel investor understands how the startup game is played and the role that he plays. More importantly, he understands that most startups fail and that he may lose his entire investment -- which is why sophisticated angels typically have 20 or more investments in different startups (and are merely looking for a few of them to succeed to get a strong return).
To read the full, original article click on this link: Scott Edward Walker: Raising Capital? 3 Tips for Entrepreneurs (Part 2)
Author:Scott Edward Walker
