Series A funding Questions

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dreamchaser
Posts: 48
Joined: Fri Jun 05, 2015 9:08 am

Series A funding Questions

Post by dreamchaser » Fri Nov 08, 2019 5:19 pm

I was offered to participate in an upcoming but still risky venture. This is a highly regularized and license only business and completely aware of the fact that I can loose 100% of my investment. I have the needed cash and it’s roughly 10% of my ‘current’ wealth. For a better perspective its roughly 1/3 of our pre-tax yearly income. So even though it’s a good chunk of our current wealth, losing all of it will not impact our situation drastically. I work in the related industry and I do see a great potential for the business. I’m meeting with CEO the new venture in few days for 1:1 for better clarity and understanding. I’m fairly knowledgeable about industry and finances but this is the first time I’m taking part as an accredited investor.

So for all you folks who did this before (directly or indirectly) – what are some the questions I need to ask/ should know before I invest. Again, I want to focus the discussion around what should I look into rather than why I should not invest.

I appreciate any feedback, Thanks!!!

downshiftme
Posts: 1086
Joined: Sun Mar 11, 2007 6:11 pm

Re: Series A funding Questions

Post by downshiftme » Fri Nov 08, 2019 6:24 pm

Maybe you are an insider or an industry luminary, so that is why they are seeking your involvement? In my experience any early stage company that was offering participation to me was out of other options and usually for good reasons. The few I tracked afterwards (I invested in none) all ended up more or less worthless and the only money anyone made was by actual employees in the form of salary for their work on the idea.

Actually working for a company that seeks additional investment was different, and sometimes those actually had an upside. Net new ventures that sought unrelated investments from me (a relative nobody) as an early stage investor were all seemingly good, but not good enough, ideas that failed to turn into viable companies.

The only questions I would suggest would be why this particular situation is different from the other seemingly good ideas that failed to develop profits. Why do they want your money specifically? How much can you find out about what they intend to do with it.
Last edited by downshiftme on Fri Nov 08, 2019 6:28 pm, edited 1 time in total.

Grt2bOutdoors
Posts: 21385
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Series A funding Questions

Post by Grt2bOutdoors » Fri Nov 08, 2019 6:26 pm

How long is the lockup? What is the exit strategy or end game for the investor? Are there any "gates"? Under what circumstances are such gates activated? How/when can you get out of the investment if you want to sell?

Remember, this is your money at risk, it's best that you think of every single question you may have and ask them. First time investor, you should ask plenty of them, no question is dumb. No one will watch over your money better than the person who earned it - you!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

MotoTrojan
Posts: 6571
Joined: Wed Feb 01, 2017 8:39 pm

Re: Series A funding Questions

Post by MotoTrojan » Fri Nov 08, 2019 6:29 pm

I would try to estimate future exit valuation and how many raises of how much will it take to get there. Dilution is a big deal. 1% of a company sounds nice but at Series-A you’re probably looking at less than 25% of that.

Topic Author
dreamchaser
Posts: 48
Joined: Fri Jun 05, 2015 9:08 am

Re: Series A funding Questions

Post by dreamchaser » Sat Nov 09, 2019 10:35 am

Thanks for good feedback. I will answer some of the questions I already know.

I was offered because one of the founding partners is a my work mentor. The venture is beyond idea stage and raising the money to increase the production. The lock-up period is 3 years and after that 'only transferable' to existing share holders. The end goal is to go to IPO but still a long way to go. Don't know about dilution plans, so that is on my list to ask apart from asking what exactly I'm getting for the money.

I appreciate your feedback and time.

Thanks.

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