27 negotiating a fair valuation and favorable funding terms, along with complex regulatory requirements which can change by industry and jurisdiction. Also, protecting their IP assets such as patents, trademarks, and trade secrets is more crucial than ever but can be costly and time-consuming. Investors these days are conducting a much more thorough due diligence before investing, and companies need to provide accurate and transparent financial records which creates a challenge in terms of information sensitivity. To mitigate some of those risks, companies need to perform thorough market research and financial modeling to justify valuations while engaging with experienced legal counsel to seek advice and negotiating the terms. They also need to work closely with IP attorneys to secure and enforce IP rights.” Jonathan Neumann, associate at Shibolet & Co. points out: “With the increasing volume of pre-seed financing by notable investors, unlike the traditional “friends and family” rounds, startups must prepare for pre-seed financing with the same rigor as a full-blown priced round. Legal counsel can enhance these factors by ensuring that corporate documents are properly in place and that day-to-day activities are well recorded, thus building investor confidence.” Valuations are under pressure and moving the business to revenue generation will de-risk the business Adam at Dechert adds: “Investors are continuing to fund startups in their portfolios, although valuations are under pressure. There is a real need to show revenue as soon as possible and significant progress towards goals. That means startups having a focus and determination to take the hard decisions on costs and those that make breakthroughs in pursuit of their goals are the one most likely to attract the confidence of investors. Moving the business to revenue generation and showing market adoption through sales will de-risk the business from investors’ perspectives dramatically, leading to a higher likelihood of success.” Many headwinds facing startups: Pressure on VCs to double digit interest rates “The biggest issue facing startups seeking financing is the macrotask of raising funds with so many headwinds,” points out Matthew Kittay, New York partner and the National Co-Chair of the M&A Practice Group at Fox Rothschild.
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