Investment & Finance Archives - Carlos Eduardo Espinal

The Fundraising Mindset

April 2, 2014 No Comments

Fundraising is not easy. It is one of the most frustrating and time draining activities you as a founder will have to do as part of your company’s growth strategy. Unless you are really lucky and investors come to you, it will likely involve taking many meetings with investors of all kinds, both good and bad before you ultimately succeed in finding someone who believes in you.

You will likely meet many types of investors along the process of fundraising, including:

Investors that doubt you as a founder/ceo, and your capabilities to execute.
Investors that are just meeting with you because they want to invest in your competitor.
Investors that don’t have the money to invest but want to be seen to be active by the ecosystem.
Investors that will want every inch of detail about what you will be doing for the next 5 years, when you both know your projections will be speculative at best and hogwash at worst.
Investors that don’t get what you do at all, but will have an opinion about your product because their child or spouse has a view on what you do.
Investors that are amazing and give you insanely relevant advice, but unfortunately say you aren’t far along enough traction-wise for their fund’s investment focus.
Investors that provide you with great feedback and would help you greatly if they were involved, but will only invest if someone else leads the round.

…And then… there is the one investor who ultimately believes in you and backs you. That’s all it takes. Just one.

The earlier the stage your company is in, the more that successful fundraising is about personal human connections and story telling. At the early stages of your business, as much as some investors will want to know your projected numbers (revenues, traction, etc), because there is so little to go on, it will always come back to your inherent abilities and vision as a founder. As such, fundraising meetings are mostly the way that founders can assess investors for value-add to their startup, but also for investors to see if they can work with the founders and to see how they think.
Because of this mutual assessment by both founders and investors during fundraising meetings, an analogy that people use frequently to describe the fundraising process is that of dating. As funny as it may seem, I do think the comparison works well…

Dating and fundraising

For example, in dating (as with fundraising):

You have to be willing to put yourself out there to meet anyone in the first place.
It’s a numbers game: you have to meet many people, this can be at in-person at networking events, parties, or online.
Connections usually happen in the least likely of places and are strongest when they come through a trusted 3^rd party.
Being a good story teller gets people to laugh, open up, and remember you.
Chemistry matters.
Sometimes its just plain luck: being at the right place at the right time.
The better you prepare yourself, the better your odds get.
Being too eager to get back to someone or waiting too long can end things prematurely.
You have to go on several dates with several people before you ultimately feel someone is the right one for you.

Therefore, the fundraising mindset is really about four core things:

Understanding that fundraising is a process and that it will take time. Only a very few are lucky to have it be quick and painless.
You have to embrace rejection as part of the process and not take it as a personal rejection.
Treat every meeting as a form of practice that is merely making you better for the next meeting, rather than putting the full importance of any one meeting on your shoulders and beating yourself up if it goes badly.
Analysing what was said during your meetings and learning how to improve on your mistakes is the most crucial aspect of reducing the time it takes until you find the right investor.

As you will likely never know where, when and how you will meet your future investor… as you go through this process, just remind yourself: Good news, Bad news – you never know…

The Fundraising mindset from Carlos Espinal

Investment & Finance

Be Nimble: Keeping Milestone Optionality

March 20, 2014 No Comments

Identifying milestones for your company’s development is beneficial for an early stage startup for many reasons: the first is that planning milestones allow you to focus what you will be working on, secondly the process of identifying and planning them make you question when and in what order you and your team should try and execute something, and lastly, from a fundraising perspective (something I cover in more detail in my blog post on milestones) milestones are useful to tie together what you need to accomplish with how much money it will take to get there, and fundraise accordingly.

On this post, however, I’d like to address a very important concept that should be considered during this process of outlining and planning milestones. I call it, “keeping milestone optionality”.

The principle is very simple… even though you plan your company’s future growth and associated cash needs, you can’t lose sight of the fact that you’re a nimble startup.. not a large corporate that has to report to analysts and public market shareholders. Your nimbleness is your strength. A startup’s growth plan isn’t linear, it’s more like a series of zig zags. As such, whilst it is useful to forecast your milestones so that you have a plan, and understand your cash needs, it is also useful to look at that plan with one eye, while the other eye looks out for actions which might be more beneficial to your company than what you had originally envisaged or agreed with existing shareholders.

On my post on 7 reasons for founders to avoid tranched investments I spoke about how a future tranche (a glorified milestone, if you will) could have a negative impact by dictating what a company should do, even if midway through its execution it turns out that it was a bad idea for the company to have that goal. For example, imagine if your plan had in place a monetization strategy (and associated revenue stream) kicking off in month 6 of your operations. Month 6 comes along and well, uptake is poor and your revenues are not coming in as expected. You have some chats with your customers and you find out that actually, the value they are getting from your product is mostly around the emerging network effect of your product, and because the network is still small, your early monetization is stifling the value they are getting because the barrier for new users to sign up is still high, and thus those that would be likely to pay are reluctant to pay.

Well, if you (or your investors) held you strictly to your original plan for the sake of ‘keeping to the plan’, you’d kill your company quite quickly, but by staying nimble and adapting your milestones to what you think should be the new direction, you might actually be better off than you would have been before. Naturally, this optionality comes at a cost, as your original plan will have changed and thus your cash burn will change and your goals (KPIs) will change as well… and that’s ok as long as you are aware how.

Good early stage investors (particularly those that invest in pre product-market fit companies) know that this kind of change mid-way through their funding is a possibility and they should be backing you in your ability to make these difficult calls even if it means a deviation from the plan they invested in. However, you should be mindful that there are many investors out there, that for some reason, still believe highly in the adherence to a stated plan. If you can, avoid taking money from them. At the very early stages in a company’s development, particularly during the pre product-market fit phase, investors should invest in you for your ability to adapt to changing and evolving circumstances, and not in your ability to predict the future 18 months in advance and stick to the plan when it clearly isn’t working.

Of course, this isn’t a recommendation to throw out all forms of planning, it still helps to create a milestone plan based around your hypothesis of growth (and relevant KPIs), cash needs, for you can’t be changing strategies every month and you need to keep an eye on cash burn. At the same time, however, you should constantly monitor whether there is another milestone optionality play coming up. If you do find, however, that you are constantly questioning your original hypothesis for growth, perhaps there is a bigger problem you are facing, but by keeping an eye open for milestone optionality events, you might fare better than if you exert uber discipline to a rigid plan that was built before you learned many new things.

In conclusion, as a founder, plan for the future, identify key milestones to grow towards, but always keep milestone optionality, particularly in pre product-market fit companies.

Human Resources, Marketing, Product Market Fit

Creating a Brand that Lasts a Lifetime

February 24, 2014 No Comments

In my last post on “Understanding The Vision in a “Visionary Founder” I tried to tackle the softer side of what an investor looks for, and as a continuation of the thread, I want to try and tackle how that vision evolves into a brand and brand culture and brand positioning.

Last night, I had the chance to watch the movie ‘Bones Brigade: An Autobiography’, about the lives and histories of many of my childhood skateboarding heroes… including Steve Caballero, Tony Hawk, Mike McGill, Lance Mountain, Rodney Mullen, and several others who were all part of the Powell & Peralta skate team: the Bones Brigade.

As I relived those memories, I recalled how passionate I felt about the sport because of how these guys made it amazing and accessible at the same time. They invented tricks, such as the ollie, which democratized skateboarding for kids so they could enjoy skating on their streets rather than hoping to see a half-pipe pop-up in their neighborhood. On a personal note, I can remember as a kid wishing I could be part of the Bones Brigade and riding with cool pro-kit from my favorite skaters. All the skater kids in school had Powell-Peralta stickers and patches sewn on (typically by disapproving mothers) onto our backpacks. I even went as far as building my own quarter-pipe and ‘branding it’ Powell Peralta!

Yours truly (many moons ago & with hair) launching off of my home-made Powell-Peralta branded quarter-pipe. I made it in shop-class.. in case you’re wondering, I got a good grade in that class.

However, with more adult eyes, what really impresses me now is the visionary machine that was Stacy Peralta (one of the two co-founders of Powell & Peralta) in crafting the Powell-Peralta & Bones Brigade brands that captured the spirit of skating in a way that lured kids like myself and my friends in to want to connect with it and live it.

Great brand lasts a lifetime.

As an observer and appreciator of great branding (the way some appreciate art), It’s amazing to see how, to this day, even long after its death in 1991 (the company fell apart due to a founder dispute) and recent rebirth (the founders patched things up by request of the team) the Powell&Peralta / Bones Brigade story stands out as an inspiring tale of a visionary founder that created an awesome brand and culture, and positioned it to stand out above and beyond the crowd of the other me-too companies of its time. The fact the Bones Brigade autobiographical movie came out recently and the brands have been succesfully reborn almost 20 years on from their heyday, is a testament to how much the whole brand, and what it stood for, stuck with many of my generation.

It starts with a vision.

Stacy Peralta, helped create a brand and culture upon which he positioned the company in a way that resonated with his customers and led to Powell & Peralta’s success both in attracting the kind of riders that lived this vision to join his team, but also in successfully selling many skateboard decks to kids wanting to live his vision themselves.

As a bit of background, Stacy himself was a champion skateboarder and member of the famous Z-Boys (arguably the first skateboarding team in the world), and in many ways that helped shape his vision about what a team should be like, having himself experienced the eventual falling out and disbanding of the Zephyr team.

Stacy’s vision of forming a better team without the attributes that broke apart the Z-Boys, drove the engine that would come to power the Bones Brigade brand from the very beginning. In the movie, you can hear Stacy himself share his vision (at minute 8:53) about how he wanted to make a team that would last, and (at minute 7:40), you can also hear how his co-founder George Powell narrates Stacy approaching him on the idea of building a team with a specific ethos, which eventually became the Bones Brigade.

To dig deeper, the brand’s development and success wasn’t accidental (although there were likely many many many failed experiments along the way)… rather, it was through meticulous work that Stacy Peralta and his team developed a culture, tone, and imagery to communicate the values and positioning he wanted to convey for the brand, both externally and internally.

It was this hard work, as well as Stacy’s ability to inspire his team, that can be attributed for keeping the Bones Brigade together for as long as they did. In one part of the movie, you can even hear several riders struggle with various aspects of their success, but ultimately staying with the team for Stacy. If Stacy had simply been driven simply by money (or an ‘exit’) he wouldn’t have conveyed the genuine care necessary to merit the loyalty of his team.

To showcase the point about how Stacy chose how to communicate his vision through his brand, in the movie (starting at minute 29:40), Stacy Peralta shares how his marketing campaigns, ranging from the burning of a car while the guys posed for pictures, and the crazy advertising style choice over the typical ‘action shots’ of the industry’s advertising at time, were chosen to cement the new brand’s tone and voice as different from the rest of his competitors that were pushing out bland ads in the magazines of the day. I’m not sure they knew ‘for a fact’ that these crazy ideas would 100% represent what they wanted to convey and convert into sales, but I’m pretty sure they knew that if they did what everyone else was doing, they’d for sure NOT be able to be different in the eyes of their customer.

From the Bones Brigade website:

Stacy recruited the skaters and handled marketing along with his longtime creative cohort Craig Stecyk III. Rejecting the expected action shot marketing, they used their young team to create esoteric images conveying the culture’s sarcasm and disenfranchised dark humor. While spitballing about his stable of skaters, Stacy commented that he never wanted to call them a “team,” a label that invited all kinds of jock baggage. Craig shrugged and simply said, “Bones Brigade.”

In effect, Stacy understood his customers and how to position his brand within the skateboarding competitive landscape of the time, and he recruited those that shared his vision, including the Bones Brigade team of skaters along with artists like Craig to help him evolve and communicate his vision and branding strategy to make it stand out from the crowd. Stacy & George worked hard to recruit the right riders, work with the artists that understood the brand, hire staff to help them build it, and attract customers that lived it.

As with most companies, that’s not to say that all was rosy within the Powell & Peralta company. In one segment of the movie, George talks about the disgruntlement that some of his more senior factory employees felt at the fact that his young team riders were making upwards of $20,000 a month from deck royalties.. however, it seems that George & Stacy were able to at least convey the importance of the Bones Brigade for the company’s success and managed to convince their factory employees to stay so that things could carry on for the brand. In effect, sometimes not everyone will agree with your vision, but sometimes you need to made difficult decisions.

And continues with Positioning and Branding.

Even if at times he was merely experimenting, Stacy Peralta intrinsically knew that what would make Powell & Peralta and the Bones Brigade successful, would be to have a strong positioning and branding strategy to help them differentiate from their competitors and to help bring the industry into the mainstream (for more on the difference between branding and positiong, read this article).

It was this solid company culture stemming from a strong founder vision around building a winning team, a clear positioning strategy of being different, and a strong brand values that powered Powell & Peralta and the Bones Brigade brands to success, and it was their consistency in execution, ranging from the art on the decks to the arguably kitsch videos they created (such as the classic “The Search for Animal Chin“), that allowed Powell & Peralta to dominate the skate scene during this era and to cement itself in the hearts of many kids around the world for many years to come.

In conclusion, as you consider starting or evolving a startup, give thought to what really drives you.. determine what’s your vision, and once you know the ‘why’ and who your customer is, then communicate it and your brand’s values and positioning with your employees and partners so that your product or service is consistent with everything you say and do for your customers. Potential investors know that companies that nail down their branding and positioning strategy company-wide, are that much more likely to succeed in the sea of competitive startups out there.

In case you are wondering why I choose skateboarding as an analogy for this post, it’s because I believe there are many similarities between startups and skaters:

1) Entrepreneurs, like skaters get knocked down many many times before they succeed, but they keep on getting back up.
2) Startup life like skate life is very much its own culture, operating at a different speed and risk level than others.
3) By having a movie that highlights some of the key points, if you want to hear them from the founders directly, you can simply rent it.

Human Resources, Investment & Finance

Understanding The Vision in a “Visionary Founder”

February 19, 2014 2 Comments

Originally published by TheNextWeb on Feb 19th, 2014

“If you have visions, you should go see a doctor” – Helmut Schmidt, one of the most admired German chancellors

Because I know how confusing and frustrating the fund-raising process can be for a founder, one of the topics I like exploring is ‘how to get into the mind of an investor’ when an investor is evaluating you for an investment. And whilst the easier topics to tackle tend to be quantitative in nature, the harder ones tend to be the ‘fuzzier’ qualitative ones…

In that spirit, I think we’ve all heard how investors want to invest in a ’solid team‘ and how they want to invest in founders with a ‘strong vision’.. but what does that mean exactly? With visions, mission statements, and all that kind of fuzzy talk being part of many self-help books that are often dismissed as snake-oil, do they really have any place in the fast-moving, cold & hard world of startups? In the context of the early stage high growth startup world, what does having “vision” really mean?

Let’s start by defining what a founder’s vision* is not… *(feel free to replace a ‘founder’s vision’ with a ‘leaders’ vision’)

Vision does not equal power

A founder’s vision is not about how much money you want to make once you exit, nor is it about obtaining power or prestige. It isn’t about knowing exactly what the future will bring, nor is it about doing something no one else has ever done before. Rather, a founder’s vision is about how you communicate and put into action your values, beliefs, and ideals in producing & creating something of value for yourself, your founding team, your employees, your investors, and your customers. A founder’s vision is the foundation of a company’s culture and brand.

In the words of James Kouzes and Barry Posner, authors of The Leadership Challenge — “There’s nothing more demoralizing than a leader who can’t clearly articulate why we’re doing what we’re doing.”

A founder’s vision, therefore, creates a company’s culture. This culture may not always be visible to outsiders of the company (nor is it generally communicated to potential investors specifically as such), but it is visible through the company’s culture, the brand and brand values of your company are ultimately determined. It is the brand of your company which is the outward-facing aspect to your company that customers and potential investors engage with. It is this brand that allows you to attract potential employees, customers, investors and partners. Thus, I believe that vision determines culture and culture determines brand. Think of many brands you love and respect and you will likely be able to trace their authenticity to one or several individuals (even if they are no longer there) who created the vision of the company and set the culture for all the employees to guide them through the creation of the products and services you love. Think of the ones that you liked at one point but no longer do, and you’ll likely be able to trace why to a point in time where there was a break-away or ‘sell-out’ from the original vision that started it.

How is a founder’s vision applied?

In some startups, a founder identifies a need they personally have (they are the customer), and thus, builds a company around a product or service to satisfy that need. Alternatively, there are other founders that find ideas within markets that didn’t previously exist (they intuit a need for a customer)… in some cases this happens by design and research and in some cases by accident, as was the case with the 3M Post It note.

Whichever way it may come, founders that have a strong vision that is synthesised, communicated and articulated to their team (and their customers) allows them to capture these opportunities and evolve them to become successful businesses. Effectively, a founder’s vision which is synthesized into a company’s culture and brand, facilitates the decision making process you and your team use to create your company’s products and services. It is through the clarity of a founder’s vision that focus is brought to the planning and decision making process within a company, and as a consequence the company can function efficiently and increase its probability of success.

Authentically connecting with your clients

In a world were new products are constantly popping up and many being copied by unfair competitors, it is the strong adherence to your vision and the culture & brand it creates, that ultimately engages your customers to become loyal supporters and fervent defenders of your company. Unfortunately, if you betray your customer’s trust by deviating from your brand’s values, they will likely throw you and your products under the proverbial bus, so to speak.

In his TED talk about how great leaders inspire action, Simon Sinek, shares his golden circle of ‘why, how, and what’… and whilst I won’t go into summarising his talk here, the key point is that it all begins with the ‘why’ a leader must articulate to be effective… the “why” determines culture and the “why” determines ultimate “how” you do things and “what” you ultimately make.

A talented designer and good friend of mine, Gearoid O’Rourke shared a thought in one of his talks that I really think captures why it is important to take the creation of a founder’s vision and company culture seriously, in his words: “Products can be copied, but culture cannot…” “Even if your products are copied, you will always be ahead of your competitors because they can’t copy your culture [and culture is what lets you innovate].”

Once determined, the culture of your company will help you make decisions about how to engage and communicate with your customers, whom to hire, what to prioritise, and whom to partner with. In effect, you vision, your culture, and your brand will become the foundation and focus of all you do.

Where to find your vision

Your ability as a founder to set this vision and culture is the attribute that investors look for. If you are unable to determine and set a vision and culture for your company, unfortunately, you are likely to have others, such as influential mentors and perhaps even your investors set it for you, and as we all know, we can’t be someone we are not, and ultimately, this will likely lead to failure.

Once you have determined your culture and then you want to communicate it externally, authenticity is the key to retaining trust. In the words of Gabbi Cahane “if it’s just words on the wall, then it’s meaningless. Your culture is what you believe in and how you behave. Codify it, live it, recognise it and reward it. And do that every single day.” “Early stage investors are looking for the signs that you instinctively get this.”

If you are in the early early stages of starting a company and you’re really more just thinking of starting a company, I’d highly recommend you spend some time trying to understand what drives you and why, for if you want to embark on the difficult journey that is to become a founder and leader of future employees and future shareholders, it would really help you and them for you to be able to share ‘the why’ of why you do things.

And in case you are reading this and thinking to yourself, ‘but investors only care about traction’, I’ve seen several cases of where an investor is willing to take a huge leap of faith on a founder, even before any visible traction, but only when the investor feels there is a strong vision behind the company. Therefore, I leave you with this thought: Traction comes from happy and loyal customers, happy and loyal customers come from a great product or service that does what you say it does, a great product or service that does what you say it does comes from a team that has a coherent culture that allows them to know what to do, and a coherent culture comes from a strong and clear vision from the company’s leadership team.

Image credit: Shutterstock/Skylines

Ecosystem, Investment & Finance

Investment – Are You in Danger of Raising a Toxic Investment Round?

December 16, 2013 No Comments

Fundraising for an early stage technology startup is always a challenge. You have to navigate many meetings with potential investors and hopefully reach agreements that make everyone happy so you can continue to work in good faith after the negotiations are over. However, in some cases, after the dust has settled in a negotiation, it isn’t always a win-win for everyone.

For example, what do all the following company circumstances have in common? (note: all these companies are real early stage companies.)

A founder who gave away > 60% of his company for 100K in funding in tranches.
A founder that gave away > 75% of his company to his ‘investors’ in a pre-series A round.
A company that gave away > 70% of their company for < 100K to investors, but still wanted to go through an accelerator.
Another company with 51% ownership to existing investors.
Another company where the investor offered the founders a sub €30K investment but it came over tranches across the year (as in no cash right now).

As you read the above examples, you might find these offers as ’normal’ (then this post will hopefully help you think twice in the future about these kinds of deals), or you might reel in shock as you read each one of the above anecdotes. Either way, in this post I want to highlight the concept of a ‘Toxic round’ or a ‘Toxic cap table’ in an early stage startup to help founders navigate potential investment offers and avoid getting themselves into a difficult situation in the future.

What is a ‘toxic’ round?

‘Toxic’ rounds (not a technical term) can be defined as fundraising rounds that can pre-dispose a company to struggle to find subsequent financing because newer investors shy away from a potential investment once they find out what the state of the company’s current cap table and or governance.

Whilst it is very hard to make any judgments about the quality of investors because each company’s financing history is unique, a common view is that investors that ask for terms such as those highlighted above are usually not of the sort that one wants to take investment from. However, the focus of this post isn’t to highlight the qualities of ideal investors (if you want to read more about the ideal qualities of a new investor check out this text), but rather why subsequent new investors might shy away from investing in your company if you have taken on this kind of round in the past. Additionally, in this post I’m only focusing on founder dilution and not on other potential aspects of a company’s shareholdership that could make it difficult for new investors to invest.

Therefore, the reasons why a new investor might shy away from a company that has experienced a ‘toxic’ round in the past can include:

Because the company will likely require more capital in the future should it prove successful, and potential new investors feel that the founders will be less motivated to stick with the company as the value of their equity declines over time through premature excessive dilution.
New potential investors feel that current investors own too much of the company and perhaps the company has a governance issues as a consequence.
Because the investors have a large stake, it brings up a lot of questions about how the company got itself into this situation. Did it happen through a down-round? Was it due to other negative circumstances which could affect the future of a new investment? The circumstances raise a lot of questions and doubt in a new investor, and considering how many investment options an investor receives per year, frankly, as a founder raising capital you just don’t need any more reasons for a new investor to reject you.
In the specific case of ‘debt’ or an ‘early exit of existing investors as part of a new financing’; potential new investors can sometimes object to having the money they are putting in as part of a new round be used for anything other than to expand the growth of a company. This means, potential new investors may shy away from companies that have investors that are eager to dump their shares as part of the financing transaction or companies that have too much debt outstanding that is repayable as part of an upcoming round.

Having said the above, how do you more precisely define a toxic round? Well, a toxic round could be where either “too much money” comes in too early at a too low a valuation, or where a company is too under-valued, or both. All of these cases lead to founders being greatly diluted too early in their company’s life.

To help you visualise these potential scenarios, let’s look at the following equations:

Money Raised / Post Money = % dilution to founders
Money Raised / (Pre Money + Money Raised ) = % owned by the new investors

These two equations represent the same thing, the only thing that changes is the definitions, but the numbers are all the same. If you don’t know what Pre or Post money mean, check out myrecent blog post which defines some of the components of a round.

What is the solution for toxic rounds?

Knowing the above, it would seem that the solution for toxic rounds would include both raising the right amount of money AND setting the right valuation for the company early on so that as the company grows, it doesn’t find itself in a ‘toxic’ situation. If you want to read more about how much money to raise and setting the right milestones check out my following posts below:

So if that solves the ‘Money Raised’ part of the equation, how about the valuation parts of the equation (pre-money)? Valuing an early stage company is always a source of much debate and causes many people lots of stress. As I’ve described on my previous blog posts on the subject:

There are many methods one can take to arguably ‘price’ a company. However, the larger point is that no matter what method you use, it will always be subject to current market dynamics… meaning that no matter what “quantitative” method you think you are using, it is subject to the variability of how the overall market is trending… if we are in a boom, the pricing will likely be higher, if we are in a bust, it will likely be lower. It’s a simple as that.

Taking these market dynamics in consideration, take a look at a recent Fortune blog post on what the average dilution hits are in the USA for Series Seed, A, B, and C rounds. In the Fortune post, you can see the average dilution per round for the typical rounds and you can see the market dynamics over the years (check out what the 2007 recession did to % dilution per round). What you realise is that none of these rounds, no matter how big, take as much equity as the real life examples I noted above at the start of this post. Even if you consider that different countries have different country risks, the range of numbers is a multiple of 3x what is recorded over the last 6 years in the USA.

What if your investment round was toxic?

So what if you’re already in a tricky situation similar to the examples I noted above? If you find that you are in the situations described in this post, unfortunately the available solutions aren’t always easy and straightforward. The single best solution is to have a tough talk with existing investors on how to rectify the situation before new investors either walk away or make it conditional as part of their new investment. There can be many ‘creative’ solutions to solving the problem with your investors, such as investors giving back equity if founders hit milestones, but they will all seem ‘creative’ to a new investor rather than ‘clean’ if not completed before they invest; hence why the ideal solution is to work through this topic with existing investorsand help them understand that by not helping you overcome the situation, they very well may be jeopardising the long term value of their own investment. Perhaps counter-intuitive, but true. In the end, any progress you make with existing investors on fixing these situations if you are already in them, is better than no progress, no matter how tough the discussions.

I leave with you with the following thought of prevention for you to discuss with your potential new investors if they offer you a hard deal… yes, they are taking a huge risk by investing in your early stage startup, but by taking too much equity or debt too early, are they really just pre-disposing your company to failure? Something to discuss.

Originally Posted at Netocratic.com: http://netocratic.com/toxic-investment-round-2451

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