What Investors Expect Before the First Capital Conversation

Name: What Investors Expect Before the First Capital Conversation
Uploaded: 2026-02-19T12:32:40.000Z
Duration: 1 h 52 min 47 s

Welcome to the Webcast

Introduction and Overview

The webcast is hosted by Regiment and Cogent Law, focusing on investor expectations before initial capital conversations.

Participants are encouraged to engage through the Q&A feature on Zoom, with questions being addressed live or at the end of the session.

Background of Hosts

The host introduces himself as a Chief Revenue Officer and senior partner at Regiment Securities, an investment bank based in Chicago, with over 35 years of experience in capital raising.

He began his career at Merrill Lynch in 1982, emphasizing extensive involvement in various aspects of capital raising throughout his career.

Jack Bowerman's Experience

Jack Bowerman shares his background as an M&A lawyer at Skadden Arps for six years, handling large corporate transactions and financings.

He has served as Chief Legal Officer for several public companies, notably Public Storage, where he significantly expanded the company and managed a hostile acquisition.

About Cogent Law

Cogent operates as a national law firm remotely, providing cost savings to clients through attractive billing rates. Jack leads their South Florida office.

Role of Regiment Securities

Regiment acts as matchmakers for capital by representing issuers (founders seeking to raise capital), while also collaborating with Cogent for legal support during this process.

They represent hedge funds and family offices looking for alternative investments but do not engage in trading; they focus primarily on deal-making.

IPO Insights

Regiment is heavily involved in IPO activities and can market offerings globally due to their access to approximately 50 million brokerage accounts.

There’s a shift occurring where smaller firms like theirs can now participate more actively in IPO processes traditionally dominated by larger banks.

Client Focus and Legal Structuring

Cogent primarily works with small to mid-cap issuers (typically between $10 million to $150 million), ensuring that legal documentation protects client interests during transactions.

They emphasize strong representations and warranties in agreements to safeguard value for both buyers and sellers involved in transactions.

Understanding Investor Disengagement

Reasons for Investor Disengagement

Investors often disengage before the first meeting due to misconceptions about product presentation. Founders may overemphasize their products, leading to confusion.

Many investors are unfamiliar with the founder or how the business operates, which can create disconnection when reviewing materials like decks or websites.

Incomplete information can also deter investors; they prefer clarity and comprehensiveness in presentations.

Importance of the Founder

The initial evaluation by investors focuses on the founder rather than the product itself. Trust is built through understanding the founder's background and capabilities.

Founders should present quantifiable examples of past successes to demonstrate their ability to replicate those achievements in a new venture.

Bridging Experience Gaps

For first-time founders, demonstrating knowledge of business operations is crucial. Understanding financial statements and operational basics reassures investors.

Hiring experts can help fill knowledge gaps within a team, as seen in an example where water experts were brought on board for a resort property issue.

Team Evaluation by Investors

Investors assess not only the founder but also the entire team’s credentials and relevant experience that contribute to potential success.

A consistent digital footprint is vital; discrepancies between personal narratives and online presence can jeopardize deals.

Managing Information Perception

Investors scrutinize both internal teams and external advisors (like legal counsel), evaluating their backgrounds for credibility.

Cleaning up any outdated or incorrect information about oneself prior to fundraising efforts is advisable to maintain a positive perception among potential investors.

Understanding Pitch Ready vs. Capital Ready

Key Differences Between Pitch Ready and Capital Ready

Pitch Ready: Involves having a compelling narrative and product that addresses a specific problem or fills a niche in the industry, creating interest among potential investors.

Capital Ready: Requires more comprehensive data and structural readiness, including corporate structure considerations (e.g., C-corp vs. LLC), which can influence investor perceptions.

Importance of Data Room: A well-organized data room is critical for capital readiness, allowing easy access to key information for potential investors without complications.

Corporate Hygiene: Maintaining good corporate governance signals professionalism and competence to investors, indicating that the founders are capable of managing their business effectively.

Preparing for Investment Readiness

Shovel Ready vs. Street Ready

Shovel Ready: Refers to being prepared with all necessary materials (deck, data room) so that an issuer can present their offering clearly to potential investors without confusion.

Street Ready: Indicates readiness to publicly advertise offerings; many issuers fail at this stage due to lack of preparation, leading to wasted resources on ineffective marketing efforts.

Importance of Investor Relations

Monitoring initial responses from potential investors within the first 30 days is crucial; adjustments should be made based on feedback regarding meetings and appointments.

Regulatory Awareness in Capital Raising

Understanding relevant regulatory frameworks is essential for demonstrating preparedness for capital deployment; this includes knowledge about evolving areas like fintech and cannabis banking.

Having informed advisors who understand regulatory issues enhances credibility with investors and ensures compliance with legal requirements during fundraising efforts.

Risks Associated with Oversharing or Undersharing Information

Founders must balance sharing enough information about their business while avoiding oversharing risks; private placement memorandums (PPMs) often highlight both deal benefits and associated risks equally.

Understanding the Balance of Oversharing and Undersharing in Founder's Disclosures

The Importance of Risk Factors in Investment

Founders often share stories about oversharing or undersharing, which can create risks for their companies. Private placement memorandums typically include a "risk factors" section that outlines potential issues related to investments.

This section serves dual purposes: protecting founders from liability and educating investors on what they are investing in, including competitors, regulatory risks, and relevant litigation.

Striking the Right Balance

Finding the right balance between sharing too much and too little information is crucial. Oversharing can deter investors while undersharing may lead to legal liabilities.

Legal teams should collaborate closely with operational teams to ensure that risk factors and disclaimers accurately reflect the business's situation.

The Dangers of Overenthusiasm

Founders may become overly excited about their company's roadmap, leading them to use exaggerated language that misrepresents the reality of their business.

During pitches, founders might deviate from established roadmaps or introduce new elements spontaneously, causing confusion among potential investors regarding the company’s direction.

Notable Examples of Disclosure Issues

Even experienced founders like Elon Musk have faced scrutiny over questionable disclosures during investor calls or tweets that could significantly impact stock prices.

It is essential for founders to be cautious with absolute statements that could lead to market volatility; legal counsel plays a critical role in guiding these communications.

Preparing for Investor Pitches

Thorough preparation is vital before investor presentations. Founders should outline scripts and stick closely to approved messaging to maintain clarity and consistency throughout their pitch.

Keeping legal advisors involved primarily in setup rather than defense helps prevent distractions from growth initiatives; this focus allows businesses to thrive without getting bogged down by litigation concerns.

Learning from Experience

Personal experiences highlight the importance of listening to advisors; learning from past mistakes can help avoid future pitfalls in communication strategies with investors.

Consistency across all forms of communication—whether it be PR materials or agreements—is crucial as inconsistencies can erode investor confidence over time.

Understanding Consistency in Business Messaging

Importance of Consistent Messaging

Consistency is crucial across all platforms, including scripts, decks, websites, and social media. This ensures the company name and messaging are uniform.

An up-to-date privacy policy and security policies contribute to a professional image. These elements should be double-checked for consistency to resonate with stakeholders.

Challenges in Maintaining Message Consistency

Staying on message can be challenging during investor calls; distractions may arise that lead discussions off-topic.

Founders often make structural or governance mistakes when raising capital that can negatively impact valuation or control.

Common Mistakes in Capital Raising

Issues with SAFE Agreements

Many founders use SAFEs (Simple Agreements for Future Equity), which can complicate capital structure if not managed properly.

Having too many SAFEs from various investors can constrain future fundraising efforts due to a complicated cap table.

Financial Assumptions and Risks

Early mistakes in structuring deals without professional advice can lead to significant financial losses for founders.

Excessive assumptions in financial projections increase risk; relying on too many variables makes deals feel uncertain.

Engaging Networks for Capital Raising

Mapping Current and Ideal Networks

Founders should create a network map detailing current relationships and organizations they are connected with as part of their preparation for capital raises.

Identifying an ideal state network helps determine who could assist in raising necessary funds by leveraging existing connections.

Action Plans for Networking

Engaging with advisors or firms like Cogent is essential; they should be included in the network map as potential resources.

Developing an action plan involves identifying steps needed to connect with key individuals through conferences or alumni networks.

The Importance of Conferences for Business Leaders

Staying Current in the Industry

Attending conferences is crucial for business leaders to stay updated on industry trends and competitor activities, exemplified by events like the Consumer Electronics Show in Las Vegas.

Networking Opportunities

Conferences provide valuable opportunities to connect with potential suppliers and customers, making them worthwhile investments of time and resources.

Understanding Related Party Transactions

Legal Implications

Related party transactions can be red flags, particularly if they involve poorly documented loans or vendor relationships; legal scrutiny is essential.

Importance of Disclosure

Full disclosure at the board level regarding related party transactions is critical to maintain transparency and mitigate risks associated with conflicts of interest.

Market Shifts: Macro vs. Micro Trends

Observing Market Changes

The speaker emphasizes the importance of monitoring both macro and micro shifts in the market regularly through data analysis.

Emerging Investment Areas

Real-world assets and cryptocurrency are gaining traction among family offices, indicating a shift towards non-traditional investment structures driven by fear of missing out (FOMO).

Navigating AI in Business

Caution with AI Claims

Many companies falsely claim to utilize AI; regulatory bodies like FINRA and SEC are now scrutinizing these claims to ensure authenticity.

Legal Considerations for AI Use

New rules from state bar associations address how AI should be used in legal practices, highlighting concerns over attorney-client privilege violations when using tools like ChatGPT.

Key Responsibilities for CFOs in Startups

Financial Oversight

CFO responsibilities include ensuring accurate financial records, focusing on balance sheets and profit & loss statements during a startup's infancy.

Collaboration Between Departments

A strong partnership between finance and legal departments is vital for effective communication and decision-making within well-run organizations.

Investor Reactions to Non-U.S. Citizen Founders

Overview of Investor Sentiment

Investors generally do not exhibit negative reactions towards non-U.S. citizen founders, with some exceptions based on specific ties to controversial figures or regions.

Concerns arise particularly for clients linked to oligarchs in Eastern Europe and Russia, which can lead to intense scrutiny from regulators during transactions like bank acquisitions.

Industry-Specific Considerations

The banking and finance sectors are highlighted as areas where regulatory concerns about foreign ownership are more pronounced, especially regarding national security implications.

Managing Capital Raising Alongside Business Demands

Balancing Responsibilities

Founders must treat capital raising as a significant commitment, akin to a side hustle that requires dedicated time alongside their primary business responsibilities.

Empowering team members is crucial; delegating tasks related to capital raising can help alleviate the burden on founders.

Utilizing Expertise

Organizations often have specialized teams (IT, HR, finance), and no founder can be an expert in all areas; leveraging internal expertise is essential for effective capital raising.

Engaging trusted advisors can relieve pressure from founders, allowing them to focus on strategic growth while ensuring necessary operational aspects are managed effectively.

Budgeting for Capital Raising

Financial Planning Essentials

Raising capital incurs costs; budgeting for offerings is critical. Different levels of service exist (low-cost to expensive), and understanding these options helps in planning effectively.

Importance of Inquiry

Continuous questioning and seeking advice from industry experts is vital for navigating the complexities of capital raising successfully.

Challenges of Funding Startups Without Revenue

Viability of Pre-Revenue Businesses

It’s challenging but possible to raise substantial capital for startups lacking financial history; often backed by deep-pocketed individuals who provide initial funding.

Drawing Comparisons

Identifying comparable businesses ("comps") helps demonstrate potential success; showcasing research and understanding market dynamics reassures investors about the startup's viability.

Strategies for New Startups

Establishing Credibility

New startups should emphasize their preparedness by demonstrating thorough research and knowledge about their industry, which builds confidence among potential investors.

Capital Raising Insights

Understanding Cost Expectations for Services

Founders should inquire about ballpark figures regarding the costs of low, mid, and high services, noting that these can vary significantly by field.

Importance of having a solid finance person internally and potentially hiring a CPA or external auditor to review financial statements is emphasized.

The Necessity of Audited Financials

When preparing to raise capital, it is crucial to have audited financial statements that comply with accounting standards such as GAAP.

There are law and accounting firms catering to various market sizes; however, quantifying exact figures requires more specific information about the industry or business.

Closing Remarks and Future Sessions

The discussion concludes with gratitude towards participants and co-host Jack, expressing hope that valuable insights were shared during the session.

An invitation is extended for future sessions in two weeks that will delve deeper into capital raising processes encountered by founders.

Offer for Assistance

Participants are encouraged to reach out for assistance on specific issues related to their businesses; a 30-minute conversation can be arranged to explore potential support.