Once a company founder has tapped the funds available from his or her resources and![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2020\/09\/Contracts-1-300x158.png\")
from friends and family, if the company needs more cash for growth, the most obvious next step is to look for money from angel investors and venture capitalists, typically in the $300,000 TO $3,000,000 range.<\/p>\n
And the restrictions upon your freedom to operate\u2026<\/strong><\/p>\n This money comes with restrictions a founder may not expect, including restrictions upon the sale of founder stock, clauses that require the investor be allowed to sell an equal proportion of stock upon any other person\u2019s sale of stock, anti-dilution provisions that protect the investor from a subsequent offer of stock at a lower price, and much more.<\/p>\n A seat on your board?\u00a0 <\/strong><\/p>\n [Email readers, continue here…]<\/em><\/span>\u00a0 \u00a0 Almost always, professional investors, including angel groups and venture capitalists, also require at least one seat on the corporate board.\u00a0 The investor organization is granted the seat if the investment remains, and the documents often name the first representative assigned by the investor group to the position.<\/p>\n Why these restrictions?<\/strong><\/p>\n However, outside professional investor board members can be a very good asset to the corporation with the skills, experience and broad relationships many bring to the boardroom table.<\/p>\n","protected":false},"excerpt":{"rendered":" Let\u2019s talk about the reality of taking money from professional investors.\u00a0 It is not the first time we\u2019ve covered this general subject nor the last. But this time, we concentrate upon governance changes. After friends and family\u2026 Once a company … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2019\/02\/Borrowing-money.jpg\")
In later insights, we will explore the legal and ethical responsibilities of board members.\u00a0 But the intent of these \u201cforced\u201d placements of a representative on the board is obviously to watch over the company\u2019s use of invested funds and to help grow the company in value.\u00a0 The combination of restrictive covenants in the investor documents and the new dynamic of board members with an agenda make for a change in the culture of the corporation, certainly one for the CEO.<\/p>\n