Securing the funds you need to take your startup to the next level is a very difficult and time-consuming process. Last night, Richard L. Cohen, Robert J. Borghese, and Neil Cooper met at the Morris Café for a discussion on different types of investments you can raise as well as their upsides and pitfalls. The event was organized by the Philadelphia Bar Association Small Business Committee Chair Kate Tepper and Vice Chair Mark Vogelbacker. It was moderated by Joel S. Solomon. Each member of the panel works in the categories of: securities, mergers and acquisitions, corporate and transactional law.
It seemed as if the focus was on raising a seed round from friends and family or angel investors as well as convertible notes being the hot trends. When it comes to friends and family, Mr. Borghese said, "They believe in you and they want to help you and therefore it will be the easiest way for you to prove your concept with a small amount of seed money." But his words of wisdom were, "To not be greedy because when an institutional investor comes in they will devalue your friends and families investments because they will give you a proper valuation."
Mr. Cohen talked about what it takes to get to the next round. "You have to have all of your documentation organized, a great PowerPoint presentation. Make sure to practice your pitch, because you only get one shot in front of these guys."
Mr. Cooper stated that, "In order to get to the next level, if you were seeking $500k to $2M, you'll have to go to institutional investors, which means you need to have a good network, as well as having more traction, and a more solidified product." And then reiterating his earlier claim, Mr. Borghese talked more adamantly about entrepreneurs and how they should avoid taking in money for as long as possible. "Bootstrapping your company and trying to get to the point of breaking even is the most important thing a tech startup can do." Which is true since the moment you take on a big investor, you will start to dilute your ownership and lose control of your company.
Mr. Cohen reinforced that statement by telling us a story about pharmaceutical companies. "Founders develop a new drug or medical device only to lose control to the investors who originally funded them, and replace their positions within the company while diluting their shares to almost worthless nonvoting shares."
It was a very informative discussion, and it was great receive validation on the things we only hear about in the news or from the research that we do as entrepreneurs. For more information about Duane Morris, check out their website here. If you want to see pictures from the event you can see them here.