Securing Funding: How to Avoid Terms that Kill Startups
Dec 13, 2023
Raising capital is a crucial step in the journey of a startup, but it's important to be aware of the terms of the investment that can be detrimental to the success of a startup. In this blog post, we will discuss how to avoid bad terms that can kill startups and how to negotiate better terms that will help the startup grow and succeed.
- Avoid giving up too much equity
One of the most common bad terms that can kill startups is giving up too much equity. Giving up too much equity can dilute the ownership of the startup and reduce the potential returns for the founders and early investors. Startups should be aware of this and should be prepared to negotiate the equity that they are willing to give up.
- Avoid giving up too much control
Another bad term that can kill startups is giving up too much control. Startups should be aware of this and should be prepared to negotiate the terms of control that they are willing to give up. Giving up too much control can limit the ability of the startup to make important decisions and can reduce the potential for success.
- Avoid onerous terms
Startups should also be aware of onerous terms that can kill startups. These terms can include restrictive covenants, such as non-compete clauses, that can limit the ability of the startup to compete in the marketplace. Startups should be prepared to negotiate these terms and should be aware of their implications.
- Avoid hidden costs
Hidden costs can also be a bad term that can kill startups. Startups should be aware of these costs and should be prepared to negotiate the terms of the investment to ensure that they are reasonable and fair.
- Avoid overvaluing the company
Another bad term that can kill startups is overvaluing the company. Startups should be aware of this and should be prepared to negotiate the terms of the investment to ensure that the valuation is fair and reasonable. Overvaluing the company can reduce the potential returns for the investors and can limit the ability of the startup to raise additional capital in the future.
In conclusion, startups should be aware of bad terms that can kill startups, and should be prepared to negotiate better terms that will help the startup grow and succeed. Startups should avoid giving up too much equity, too much control, onerous terms, hidden costs and overvaluing the company. Startups should also be prepared to negotiate the terms of the investment to ensure that they are fair and reasonable. By understanding and following these guidelines, startups can avoid bad terms that can kill startups, and can negotiate better terms that will help the startup grow and succeed.
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