SeedBlink hosted a webinar on “How to avoid becoming uninvestable to a VC?” with guest speaker Ted Cominos Jr., Partner at Eversheds Sutherland, and moderated by by Radu Georgescu, the Founder & Chairman of BoD at SeedBlink. Ted has more than 20 years of experience advising clients on mergers and acquisitions, other complex transactions, commercial and contractual matters, corporate finance and other business matters.

During the session, they covered:

• Common elements VC investors look for before investing in a startup
• The role of cap tables, and equity management in the life of a startup
• Tips and tricks on how to prepare for a meeting with a venture fund
• Common mistakes at different stages of growth that can make you uninvestable

Here are some key take-aways:

1. Build a strong team

First and foremost, investors examine the founding team—a strong, cohesive team that can work together, pivot when necessary, and handle the inevitable challenges.

Investors want to see a group of founders, not just one leader, showing they can collaborate and execute together. The ability to face difficult situations, adapt to changing circumstances, and maintain alignment is vital for any startup's success.

Ted:

“No matter what you do, no matter how great your plan is, stuff is going to happen. Your plan will go sideways. Runaways will get elongated. So, you need to have a team that can work together, pivot, and be in alignment down the road with you.”

Radu:

“Investors look at a startup from a team structural point of view, so that is very important, besides the ability to generate traction and sales.”

2. Protect your cap table and ownership early on

Maintain a clear, up-to-date cap table that accurately reflects all equity distributions and agreements. A messy cap table is oftentimes a major red flag for your potential investors, especially for venture capital funds that pay high attention to this.

Ted:

"Ensure that all ownership agreements are formalized and that your cap table is complete and accurate. Hidden equity claims can be a major red flag for VCs."

3. Be prepared for due diligence

For every investment a VC makes, they've likely reviewed over 100 opportunities, with only about 5% making it to the due diligence stage. Even after receiving a term sheet, which is a huge accomplishment, there's still only a 50% chance of closing the deal.

Radu:

“As an entrepreneur in the process of raising money, investors ask me to invest a lot of time and other resources while I’m trying to run my company. They want me to focus on something I don’t necessarily know if it’s going to go through.”

Many entrepreneurs underestimate the rigorous nature of the due diligence process. To succeed means to be well prepared, anticipate the tough questions, and build a data room with all necessary documents—ensuring that corporate housekeeping, intellectual property, and other legal matters are all in order.

Founders who are unfamiliar with term sheets, cap tables, or the due diligence process often become overwhelmed or make many mistakes.

Being well-prepared increases the chances of successfully converting that hard-won term sheet into a final, closed deal. Whether through mentoring, educating yourself on venture norms, or having legal counsel guide you through the process, the more you know upfront, the better your odds of successfully securing funding.

Ted:

“I think many entrepreneurs come in the fundraising process unprepared, maybe a little overconfident and oversimplifying. Let’s say you’ve already done the pitching and done everything perfectly until you’ve got the interest of VCs. Now, you’re getting to the point where they’re going into due diligence. How are you going to be successful through that process? They’re going to put you through the wringer.”

4. Show confidence behind your claims

VCs expect founders to stand behind their claims contractually. Be prepared to legally validate the information you provide to investors and understand the potential consequences if discrepancies are found.

Radu:

“VCs are looking for cockroaches. The kind of companies that are very solid and don’t die easily.”

During the process, VCs check if a startup has its house in order—things like proper corporate governance, handling taxes, and employee structures—and they also want assurances that everything presented is accurate.

After reviewing the business, the investor will expect the founders to "put their money where their mouth is" by contractually backing the information they've provided.

Ted:

“If we’re going to invest $XM in your company and you told us that the value is Y during the due diligence, now we expect you back it up with reps and warranties contractually. We want you to confirm it’s legit and that you stand by it. Because if there is an issue, if there is a disclosure, if we find something wrong- who will bear those risks?

5. Understand all financial implications

Each round builds upon the previous one, so setting up fair terms early on is important to maintain momentum and attract future investors. Same goes for understanding dilutions and ownership structure.

If early-stage investors set too demanding terms, it can disrupt the entire fundraising process. Early-stage investors often include return preferences to prioritize their payout before founders or other investors. These terms can be complex and, if not fully understood, may lead to problematic financial scenarios.

Ted:

****“I think it’s very important to understand exactly what you’re being proposed and model it carefully, understand financial implications, and get your positioning right. Many companies with early-stage investors sometimes give away aggressive terms early on, which will frustrate your ability to layer on subsequent investment rounds later.”

6. Have patience! Fundraising is a long process

Fundraising is typically a multi-round process, and investors expect entrepreneurs to have a long-term plan at least on their mind.

Ted:

"Those entrepreneurs that educate themselves about the fundraising process in advance and are prepared for what's to come have the highest chances of coming out successfully. How do you get there? Reach out to friends and people who have already been there. Learn from those who have already made it.”

For more insights, watch the full SeedBlink webinar on How to avoid becoming uninvestable to a VC:

Discover SeedBlink’s Fundraising as a Service, and lay the groundwork for success for your next VC funding round: prepare, get warm VC intros, get help with deal structuring and more.

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