Initial Coin Offerings (ICOs) and other digital currency financing events have enjoyed explosive growth in 2017, with hundreds of millions of dollars invested with little to no regulation or government oversight. That era appears to be coming to a close, as the Securities and Exchange Commission (SEC) is poised to […]
In the vernacular of emerging companies, “runway” is the amount of time a business has to launch itself into the air. The length of the runway is a critical aspect of a business’s ultimate success. A longer runway allows a company a greater margin for error: that is, an ability to absorb setbacks and to adjust its business plan. Cash generated from operations and from outside financing lengthens a company’s runway and the cash burn rate (losses) shortens a company’s runway. You may be asking yourself “How do I raise the Right Amount of Money? There is no right or wrong answer, but carefully considering alternatives and planning is important.
Keys to lengthening the runway through outside financing includes identifying sources of funding and understanding terms of a typical Series A financing (a/k/a the first round after a “friends and family” support). Here are some tips:
- Be wary of unnecessarily spending time and money on drafting a full blown PPM.
- Be wary of “Finders” who offer to help you raise capital but are not registered with the SEC.
- Having your business affairs in order is very important to attracting investment; there are various reasons that we find that VCs say no to an investment when they want to say yes.
- Consider the source of an investment: can the investor help you in other ways? A strategic investor can have pros and cons.
Founders should consider whether a Section 83(b) Election under the Internal Revenue Code is needed to save them taxes on exit.