On April 18, Foley Partner Louis Lehot presented at TDK Ventures’ Portfolio Company Summit. Louis shared insights on getting ready to fundraise.
Key market updates included:
- US Venture Capital deal activity Q1 deal count dropped to 2020 quarterly figures, which, while below the height of the 2021-2022 post-pandemic boom, are healthy numbers.
- US Venture Debt is seeing a slow start to 2023 compared to previous years as of March 31, 2023.
- As we move into Q2 2023, more capital is available than there are projects, and the corporate focus on ESG means opportunity for sustainability-focused firms.
Key tips to avoid legal pitfalls shared included:
- Select the appropriate type of legal entity early in the company’s development.
- Clear the rights to the company’s business, brand names, logos, and domain names.
- Maintain healthy relationships among founders, and avoid acting through casual business relationships, even among friends and family.
- Follow a cohesive and well-articulated IP strategy to ensure that the company has and retains essential IP rights while avoiding wasteful spending.
- Institute a policy for social media, data collection, and other online and mobile activities.
- Properly document customer, supplier, employee, and other key third-party relationships.
- Run all fundraising through counsel
- Empower your finance team to prepare financial statements and file federal and state income, sales tax, and employee payroll taxes and filings.
- Make the finance team your business partner from the start.
- Don’t be afraid to reach out to audit firms, bankers, and lawyers for advice.
In the current fundraising, key tools for fundraising include:
- Extension rounds wherever possible
- Capped and discounted SAFEs as bridges to the next round
- Consider multi-year revenue deals to accelerate cash in the door
- Government programming
- Ecosystem partner programming
- Positive, optimistic, creative approaches that combine two or more of these levers to incentivize cash now on best possible terms
If you would like to discuss in more detail, please reach out to Louis Lehot.