When it comes to raising capital to get your new business off the ground, there’s a range of investment structures available, from common stock to exchangeable shares. One of the newer and most popular forms of financing for startups is convertible equity.
When raising an angel or seed round of financing, many startups increasingly opt to offer investors some form of convertible equity rather than more-traditional convertible notes, which require the company to repay the investment plus interest if the company is unable to raise future rounds. Convertible equity, on the other hand, removes the stress of possible repayment with interest, and gives the company the potential of starting out free of significant debt. [Read more…]
Since the Securities and Exchange Commission has recently taken an increasingly closer look at the activities of private equity and venture capital fund managers, it is more important than ever for fund managers to understand when conflicts of interest are likely to arise and how to manage them properly. The SEC has expressed concern about conflicts of interest inherent in the private equity business model and has brought several enforcement actions against private equity fund managers in the last couple of years that mostly focus on direct and indirect compensation to managers or advisers that were not properly disclosed to the fund’s investors. Since the SEC takes the position that fund managers and advisers owe a fiduciary duty of loyalty to act in the fund’s best interest, fund managers must keep a close eye on potential conflicts of interest and employ best practices like consulting advisory committees whenever possible conflicts arise.
The concept of pre-money valuation vs. post-money valuation can be a confusing one at first for many startup founders. Pre-money valuation refers to the valuation of the company prior to the investment whereas post-money valuation refers to the value after an investment has been made.
A convertible note is a hybrid of debt and equity, and it’s a popular form of financing for two main reasons. First, convertible notes are generally easy and cost-effective, because they require little negotiation and paperwork. Second, they allow the parties to put off valuation until a later time, which is useful, because accurately valuing a new company from the outset can be difficult.
As an investment manager looking into starting a hedge fund, you know that a successful launch is critical to standing out in the increasingly competitive investment management business. If you want to attract capital from the right investors, you must put in place the right team and structure for your new fund. Discounting the legal and regulatory complexity involved with forming a hedge fund or trying to wear too many hats could lead to early mistakes that stifle momentum and are expensive to fix. This post describes some key considerations for aspiring hedge fund managers who are contemplating the formation of a new fund.
