The search for investors is an elemental factor in the growth and development of a startup.
According to Carolina Perroni, co-founder of Perroni Sanvicente & Schirmer Advogados, it is important to seek investors for the growth of companies. To this end, an effective capital distribution strategy must be established to attract investors and drive the business forward.
Tips to boost a startup
Understanding the cap table
Cap table or equity interest table is the representation of the division of the company’s assets among its partners. This table establishes the rules for the allocation of quotas and the participation of each member. The expert points out that, generally, founders commence a startup with 100 percent of the capital. However, when seeking investors, the founders’ participation is diluted.
Finding a social balance
In the fundraising process, companies attract business angels who dilute the founders’ shares. Usually, the business angel asks for fifteen to twelve percent of the shares. Founder dilution may seem worrisome, but a balance must be struck.
Excessive dilution indicates a lack of control and motivation on the part of the founders and may affect investor interest. In contrast, strategic dilutions can bring benefits and expand growth opportunities.
Motivation of the founders
The biggest concern for investors as they see the dilution of the founders is the motivation and dedication of the founders. If founders lose motivation and interest, they are likely to look for new opportunities. It is, therefore, necessary to build a consistent narrative that explains the reasons for dilution. It is also important to find a social balance to motivate the founders to remain committed.
How to choose an investor
To do so, it is important to align interests and expectations; to define the reason for which the investment is sought, whether for financial capital or for the strategic value of the investor. The affinity, values, and experience of the investor must also be considered in order to find a partner that shares the vision and purpose of the company.
Legal advice
Legal advice to a startup should be a solutions-oriented field, think outside the box, and offer legal support to the specific demands of the company.
Finally, the Universidad Internacional Iberoamericana (International Iberoamerican University) (UNIB) offers the Master in Strategic Management with a specialty in Management.
Source: From investment to corporate distribution; 8 tips to boost a startup
