Every business needs capital (cash) to fund its activities. But not all capital is created equal. At the most macro level, a business can raise cash by selling equity or by borrowing (and these alternatives are not by any means mutually exclusive). This webinar explains the different types of capital available to fund a startup; how to identify potential funding sources; how to evaluate competing funding proposals; and how (and when) to negotiate financing terms. In addition, this webinar will address the kinds of investors for entrepreneurs to consider for their start-ups. To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/raising-capital-negotiating-with-potential-investors-2021/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

3. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
Robert Londin - Jaspan Schlesinger LLP
PANELISTS:
Leslee Cohen - Hershman Cohen LLC
J. Richard Claywell - The Office of J. Richard Claywell
Pankaj Amin - SC Ventures
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6. About This Webinar
Raising Capital- Negotiating with Potential Investors
Every business needs capital (cash) to fund its activities. But not all capital is created equal.
At the most macro level, a business can raise cash by selling equity or by borrowing (and
these alternatives are not by any means mutually exclusive).
This webinar explains the different types of capital available to fund a startup; how to identify
potential funding sources; how to evaluate competing funding proposals; and how (and when)
to negotiate financing terms. In addition, this webinar will address the kinds of investors for
entrepreneurs to consider for their start-ups.
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7. About This Series
Most startups are not destined to become billion dollar unicorns. Most, in fact, will fail and
most of those that survive may never be more than small businesses. Whether and to what
extent a startup will be successful depends on many factors. One set of factors is the
foundational pillars on which the company is built, and includes things such as the company’s
capital structure, financial controls, human capital, management/founder talent, market niche
(and barrier to entry), financing growth, managing burn rate, and marketing functions. This
series explores each of these topics, giving startups, entrepreneurs, and their advisors useful
tools and insight into how they can build a foundation for success.
As with every Financial Poise Webinar, each episode is delivered in Plain English understandable to investors, business
owners, entrepreneurs, and executives without much background in these areas, yet is also valuable to attorneys,
accountants, and other seasoned professionals. And, as with every Financial Poise Webinar, each episode brings you
into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is
designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area
whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: The Very Basics: Forming the Business
Premiere date: 1/27/21
#2: Raising Capital: Negotiating with Potential Investors
Premiere date: 2/24/21
#3: What Every Founder/Entrepreneur Must Know
Premiere date: 3/31/21
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9. Episode #2
Raising Capital- Negotiating with Potential Investors
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10. Major Categories of Capital Sources
• Debt (Borrowing money from a financing source)
• Equity (Selling percentage of ownership in exchange for capital)
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11. Debt and Borrowing
• Loan given to business that must be paid back with interest over specified period of time
• Attractive for startup founders who wish to maintain company ownership
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12. Equity – Selling Ownership Interests
• Individuals or firms provide money in exchange for an ownership percentage (shares,
stock, equity interests) in a company
• May take numerous forms
• Entails loss of some ownership to founders, but can be beneficial for startup that doesn’t
expect to generate revenue sufficient to repay loans or reinvest in the company
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13. Common Sources of Capital
• Banks & other Lenders
• Family & Friends
• Angel Investors
• Venture Capital Funds
• Private Placement Investors
• Equity Crowdfunding
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14. Banks & Other Lenders
• Numerous forms of debt financing (national banks, SBA, community banks, credit unions)
• May offer short, mid, or long-term financing at various interest rates
• Lending may be tailored to company’s specific needs, such as working capital,
equipment, real estate
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15. Banks & Other Lenders
• Company must generate enough cash flow to cover interest payments and timely repay
principal
• Can be paid off early, and thus can be more flexible than equity investment
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16. Banks & Other Lenders
• Traditional Lenders
• Asset Based Lenders
• Alternative Lenders
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17. Angel Investors
• Equity-based investing by wealthy individuals
• May be an industry executive or experienced businessperson able to provide guidance to
company
• May give company credibility to attract other investors.
• Angels may work in organized groups to screen deals & invest with each other, while
many invest on their own.
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18. What Do Angels Want?
• High growth and scalability
• Thus software, pharma, and tech, more than manufacturing
• A market for the innovation, a moat against future competitors
• Payoff (exit) in 5 to 10 years
• To build their own brand to gain access to future deals
• Committed Entrepreneurs; track record
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19. What Angels Have Gotten
• 2.5x exit on average
• 4.5 year average holding period for successful exits
• 50% to 70% dilution when investing at seed stage [per Angel Resource Institute]
• If initial valuation is $10 million and 50% - 70% dilution expected, then to reach 2.5x Angel
investment, exit valuation should be $83 million, or 8.3x
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20. Angel Batting Average
• Lower than baseball batting averages
• Many losers, but high returns from winners
• Likely need for future investments rounds
• Angels diversify their bets, and bet with funds they can afford to lose
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21. Venture Capital
• Investment firms willing to put forward a large sums of money in exchange for equity in
the company
• Financing typically conditioned on VC pulling money out after company is acquired or
goes public
• VCs are professional investors seeking significant return on investment
• Typically later stage investor (NOT angel round)
• Commits resources to transaction analysis and execution (thus, larger amount of
investment with commensurate potential return)
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22. Dilution
• First Founder(s) own 100%
• Then seed funders and employees are distributed shares (or ability to vest equity
interests in the case of service providers)
• Then Angels purchase a percentage of total capitalization
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23. Dilution
• NOTE: With each of these steps, the ownership share of the predecessor owners is
diluted
• Venture Capital and other later funders are likely to insist on some control (e.g., a Board
seat; blocking rights) and investment on preferential basis in the event of a liquidation-
these may doubly dilute their predecessors
[See Equity Investment Simulation at http://ownyourventure.com/equitySim.html]
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24. Non-Equity Crowdfunding
• Reward Crowdfunding (Kickstarter, Indiegogo)
 Backers contribute money (usually small amounts) in exchange for a reward
 Reward is often the item being produced
 No equity given, no debt incurred
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25. Non-Equity Crowdfunding
• Equity Crowdfunding
 Offering of securities to a group of investors.
 Often subject to securities and financial regulation. (JOBS Act)
 Enables broad groups of small investors to support startup, potentially aiming to use
a different funding source to finance further growth
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26. Offering Process for Equity Securities
• Offers and sales of equity securities must either be registered with the SEC and offered
publicly or exempt from registration and offered privately; depending on location of
offers/offerees, state securities law compliance (exemption or notice)
• Pre-JOBS Act (2012), an investor must have been an accredited investor in order to
participate in an exempt offering, and issuers of private equity securities were barred
from engaging in general solicitation or advertising
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27. Accredited Investors in Exempt Offerings – Who?
• “Accredited investors” include natural persons who:
 Possess a net worth (alone or with spouse) >$1 million (excluding value of home, and
not counting home mortgage as a liability, unless it is underwater) or
 Have an annual income >$200,000 (or joint income with spouse >$300,000) in the 2
most recent years, and reasonable expectation of similar or higher income in the current
year
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28. Investing in Private Equity Securities Pre-JOBS Act
[Rule 506(b)]
• Accredited investor has pre-existing, substantive relationship directly with issuer
• Accredited investor has pre-existing, substantive relationship with an intermediary, such
as a broker-dealer or investment advisor
• Accredited investor resold private equity shares in secondary markets
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29. JOBS Act of 2012 (In Summary)
• SEC’s prohibition on general solicitation and advertising eliminated in certain private
offerings in which only accredited investors participate (Rule 506(c) and Title II)
• In addition to pre-JOBS Act access via issuers and intermediaries with whom AIs had
pre-existing substantive relationships, AIs can now invest in private equity securities via
on-line investment platforms that advertise and engage in general solicitation
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30. JOBS Act of 2012 (In Summary)
• Accredited investors and the “crowd” of non-accredited investors will be able to invest in
private equity securities via Title III (aka Reg CF) on-line “crowdfunding portals” (with
annual investing limits keyed to income, net worth)
• Accredited investors and non-accredited investors will be able to invest in private equity
securities via Title IV (aka Reg A+) offering platforms (with annual investing limits keyed
to income, net worth)
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31. Common Documentation When Dealing With Investors
• Term Sheets
 Set out details of investor funding; come in a variety of forms depending on the
round of funding addressed and investor involved.
• Stock Purchase Agreements
 Agreement between company & shareholders regulating sale and transfer of
company’s shares; often include provisions governing restrictions on transfer,
redemption of shares, management/governance
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32. Common Documentation When Dealing With Investors
• Business Loan Agreements/Financing Agreements
 Set forth terms of financing with lenders, length of loan, interest rates, conditions, etc
• Personal Guaranty; Collateralization in Debt Financings
 Executed by startup owners to guarantee repayment of loan from personal assets in
event of default by company
 Grant security interest to lender in borrower's assetson which it can foreclose and
sell in the event the company defaults on its loan obligations
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33. Common Documentation When Dealing With Investors
• Convertible Notes
 Short-term debt that automatically converts into equity upon future events in a
company’s life, such as a later round of financing when a valuation is established
• Bridge Notes; SAFE Agreements
 Involved with debt financing: lender is granted a secured interest in company’s
assets
• Preferred Stock Certificates of Designation (containing preferred stock rights, terms and
privileges)
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34. Due Diligence is a 2-Way Street
• Do your own due diligence
 Startups seeking investment capital should do their own due diligence into their
funding sources; what value other than investment can be brought to the table
 Know your investors! Be skeptical of “matchmaking” services offering to solicit or pair
you with investors
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35. About the Faculty
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36. About The Faculty
Robert Londin - rlondin@jaspanllp.com
A partner in his firm’s Corporate and Commercial Transactions Group, Mr. Londin counsels
numerous companies in connection with their mergers and acquisitions (both strategic and
financial), financing needs and the execution of their business plans; financial concerns in capital
markets transactions; emerging-growth companies; seed and venture capital clients in connection
with the formation of their investment vehicles and making of their portfolio company investments;
borrowers and lenders in secured financings; and companies and highly compensated executives
in connection with their compensation and separation arrangements. Rob serves as general
counsel to many clients and their senior executives and advisory boards. This general corporate
representation covers day-to-day legal issues as well as strategic planning and business
development extending to acquisition and financing concerns. He also represents technology and
emerging-growth clients in connection with their strategic alliances, technology licensing, mergers
and acquisitions, corporate finance, venture capital, banking transactions and general corporate
needs.
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37. About The Faculty
Leslee Cohen - LCohen@hershco.com
Leslee Cohen, Principal at Hershman Cohen, concentrates her transactional practice in securities law, corporate
finance and general corporate law. She counsels a variety of entities, from small entrepreneurs and start-up
companies to large established businesses, across many industries from real estate to technology in connection
with private placements of both equity and debt securities, including venture capital, private equity and “friends
and family” investments. Leslee also structures, negotiates and documents significant business transactions,
including mergers and acquisitions, tender offers, joint ventures and other business combinations and financial
transactions. In addition, she handles general corporate matters including commercial contract drafting and
review, stockholder and limited liability company agreements and structuring, business restructurings,
employment and consulting agreements, and equity incentive plans and agreements, on behalf of a diverse
group of clients. Leslee’s practice encompasses Securities and Exchange Commission (SEC) compliance for
microcap public companies and committees of their boards of directors, providing counseling regarding
disclosure and regulatory obligations under the Securities Exchange Act of 1934 and the requirements of the
Sarbanes-Oxley Act, including corporate governance, ethics and executive compensation issues. Leslee also
represents broker-dealers and investment advisors in connection with securities law issues.
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38. About The Faculty
Richard Claywell - richard@biz-valuation.com
Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in Business
Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified Valuation Specialist,
Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst in Financial Forensics, Certified
in Fraud Deterrence, Accredited in Business Appraisal Review. Richard has been valuing closely held companies
since 1985. Richard’s practice is restricted to business valuation, economic damages, profit enhancement and exit
planning. Richard received his Bachelor of Science in Accounting in 1979 from the University of Houston – Clear
Lake. He then received certification as a Public Accountant in 1983. Over the years, Richard has earned additional
accreditations that relate to business valuations, economic damages and fraud. Richard has been an instructor for
the National Association of Certified Valuation Analysts for many years, has been an instructor for the Internal
Revenue Service and the International Association of Consultants Valuators and Analysts (IACVA). Richard is
currently the Director of Education for the IACVA and is responsible for the business valuations materials being
taught in 55 countries. Richard has taught business valuation or economic damage courses in China, Korea, Taiwan.
Richard has performed over 1,000 business valuations since 1985. Richard has testified in Texas County Court,
Texas State Court, Bankruptcy Court and Texas State Courts. Richard has given testimony in economic damages
(lost profits), shareholder disputes, personal injury, wrongful termination and divorce.
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39. About The Faculty
Pankaj Amin - pamin@scven.com
In his extensive work as a CEO, private equity advisor and corporate Board member, Pankaj
brings more than 25 years of leadership and operational experience in the healthcare,
telecommunications, financial services and business service sectors. Pankaj is a thoughtful,
insightful and intellectually curious advisor who has a solid grasp on process as much as product.
Pankaj currently serves as a board member of MUBIC, a makeup joint venture launched by
Intercos, a 6000-person global makeup manufacturer headquartered in Italy and portfolio
company of private equity firm L Catterton. Pankaj brings financial oversight, growth strategy, and
consumer products experience to the company’s board. Pankaj also currently serves as a board
member of Enzo Bevande, a beverage company that is bringing popular European products to the
mass market in the United States. Pankaj represents the interests of two European investors.
To read more, go to https://www.financialpoise.com/webinar-faculty/pankaj-amin/
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40. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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41. About Financial Poise
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