Transcript follows & video below
Could you highlight some of the legal issues that startups face when raising venture capital or angel investment?
Sure, when an early stage company takes on any type of capital whether it’s from a venture fund or angel group or single angel, they’re really taking on a partner. The rights that are negotiated, particularly by venture funds are extensive. They fall into 2 general categories. One imposes encumbrances on the entrepreneur’s equity. So really the vc seeks to help shape the path of the company from an exit standpoint preventing the entrepreneur from selling her shares. Or allowing the venture fund to tag along into a sale, perhaps even imposing a drag along right which would allow the venture fund to force a sale. The other area of rights that the entrepreneur has to become accustomed to, is around corporate governance. That means that the investors have a right to have a say in new equity raises or maybe more than a say, a consent right to new equity raises & sales of the company. Perhaps additional executive hires, perhaps debt financings, any changes to the corporate organizational documents that could affect the rights of the venture partners. Probably the biggest thing for an entrepreneur, especially a first time entrepreneur at least one who’s first time at getting financing, has to become accustomed to is the notion that they’re no longer with the founding team calling the shots alone. The Venture & Angel investors will want a right to participate in major decisions in the company’s future.
Ed Reitler
Fantastic, that’s really clear, thank you.
What percentage of women startups have you had as clients?
I looked at your questions before you came over & I thought about this question. A suprisingly low number. I’d never really thought about it until I first got your email about the video interviews you’re doing. I’d say females on an executive team, which is broader than saying the one founding, the primary mover of an early stage company, I’d say probably around 10% of the companies have women. I was surprised by that because as I thought about that it’s a shockingly low number! Given on a nationwide basis, there’s more women in the work force than men on a percentage basis. So I found myself surprised by how low that number is. We operated a small fund out of this office & it’s called Angel Run Capital. It’s made up of venture fund general partners, entrepreneurs, I’m an investor. It’s entirely volunteer partnership. We just invested in a woman led company called MyNines which is a flash sale aggregator, aggregating information off sites like Gilt, Rue La La, ideeli, HauteLook, Editor’s Closet. Apar Kothari is the CEO of that team. We’ve invested in 5 companies but of the 5 we’ve invested in, she’s the only female entrepreneur that we’ve invested in. My client base has a similar dynamic. Even though you haven’t really asked the question, in the questions that you sent me, I’ve never been clear on why that is.
Ed Reitler
That’s the purpose of my interviews. I’m trying to nut down why there is a shortage & how we can boost the numbers. Thank you for that.
There are groups out there that are trying to do that. Are you familar with Girls in Tech , Golden Seeds , Astia . I went & looked at some of the interviews on your site, you spoke with Natalia, she’s with Pipeline Fund & I’m a mentor to that group. Those are all groups that are very active in trying to encourage female angel investors & help train them. also to back & support women entrepreneurs & women led businesses. I’m also on the Technology Committee of the New York City Investment Fund & Fred Wilson’s heavily involved with that. I know you’ve interviewed him . That’s a fund that seeks to invest in women led businesses within the 5 boroughs of New York City. There are a lot of efforts out there & I think they have been successful. But the numbers are still staggering about how much more work that needs to be done.
Ed Reitler
Yes, yes thank you. Do you think that networking with Venture Capitalists is harder for women entrepreneurs? I know that entrepreneurs are often connected to vcs through lawyers & through their other contacts. So I’m just wondering if you’ve noted if that networking piece is missing?
I certainly actively work to put companies together with capital. It’s part of my job as facilitator or counsel to the venture funds or the companies. There’s no filter as to whether it’s a man or a woman that’s leading a venture led effort. I certainly make the introductions. On the networking front, perhanps there is a difficulty there in that, if you’re doing something after hours maybe the dynamic between a man & a woman is different than between 2 men if you’re having a beer or dinner. But I would think that that dynamic would be the same in any area where networking is crucial, any sales effort or any investment banking type of service work that there would need to be that type of interaction between a female service provider perhaps male clients or vice versa. I don’t think there’s anything unique about venture that prevents women from networking as effectively as in other industries.
Ed Reitler
OK
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