November 27th, 2012 NY Tech Council's Legal Essentials for Startups: Part 2 of 3, Financing the Entity

On Tuesday November 27th, OLC attended NY Tech Council's Legal Essentials for Startups: Part 2 of 3: Financing the Entity. The panel featured Paul Ellis, Principal at Paul Ellis Law Group LLC; Frode Jensen, Partner at Holland & Knight LLP; and Jerrold Spiegel, Partner at Frankfurt Kurnit Klein & Selz.                                                                                                                

NY Tech Council held its second edition of its panel discussion, Legal Essentials for Startups, last Tuesday night. The topic, Financing the Entity, centered around legal implications in start-up companies. The night started with brief introductions of the panel, and then launched into its theme, Financing Strategy.

Moderator and speaker, Paul Ellis opened the discussion by stating that financing strategy would be, for most startup companies, the first decision and starting point. “Where will the money come from? You have a lot of options.” He explained. He gave several questions that start ups should ask themselves; What are your objectives? Do you want long-term investment? Do you want to grow quickly and exit quickly?

The panel agreed that timing played a factor in the decision. Some startups must act quickly, in order to capitalize on the market. This causes the company to heavily consider VC's, in order to acheive their first investment. Ellis also asked the group to consider how long they could “go it alone” in terms of financing. “How much is required to reach your desired goal?” This can influence whether one continues to try to self-finance their start-up.

When it comes to pitching to VC's and angel investors, Spiegel suggested being “realistic about what you can get.” Jensen agreed, saying, “Don’t be romantic about long term ownership. Technology grows fast, and you have to be able to keep up.”

Companies looking for alternatives to angel and VC financing do have options, however. Ellis presented numerous options including: bootstrapping (“sweat equity”), consulting on the side, personal savings, hybrid business models and maximizing benefits from governmental incentives. The panel championed getting an accountant who understands the field, and knows the space. Jensen also cautioned, “The more you can avoid taking someone else’s money, the less you have to sell.”

The panel covered angel investing and VC investing in detail. Angel investing was viewed as a positive option because many invest in new companies. However, the drawbacks included: it is usually a one-time investment, can be made by investors who don’t understand the field and can be over-reaching. Spiegel stressed knowing your investor. “You must be on the same page.”

Finally, for those considering VC investment, the panel simply cautioned companies to realize that most take 20% of profits. However, many invest in high-risk companies, and can lend credibility to a company.