Getting the structure right

So yesterday I met with a lawyer that is an expert in charitable law. And as expected, he is going to cost me a fortune, but its a necessary evil.

From experience, it is important to get the structure right from the start. That is because it will influence many aspects of the start-up; including the revenue potential, features that the product may need (particularly from a compliance perspective), and the business model that you may need to operate under. For example, with my discussions with the lawyer yesterday, a few comments he made, made me think about how I need to capture information about the charities. And I am sure there will be more of this to come when I get his formal advice.

So what am I talking about as far as the structure?

Well, there are few things that need to be considered. Like what kind of corporate structure you should use, and this is also influenced by what your exist strategy is. You will need to speak to an attorney or accountant for your own personal situation. But if you are looking to develop a a business that is going to solely give you a passive income, then you probably have many choices. Whereas if the venture’s intentions is to have an acquisition, venture capital funding or even angel funding, you really need to get this right.

The structure is really important if you are considering to have VCs or Angels poking their heads in, because they want a nice clean structure. They don’t want any holes or back doors. For example, in a start-up I was recently involved in, VCs were looking at a product that the start-up had been developing. But the product was based on some IP from the parent company. This was an important fact and became a negotiation issue. Ultimately, the IP had to be moved into the start-up for the VC to continue talking to us – when originally it had a 100% exclusive license for the IP.

But I also believe that VCs like to keep this information up their sleeve as a negotiation card – and you have to be conscious (and probably weary) of that. With a VC or a Angel – you will go through an interesting process of when you finish doing your sale and a negotiation starts – but I digress, I will discuss this in another post.

In general make sure you get this structure right at the start – and it doesn’t have to be an expensive process. Structures are actually quite inexpensive if you get them right at the start – they get more expensive when you have to convert from one to another.