Venture Fundable Checklist – Is My Legal Structure Venture Fundable?

This is actually very simple:

  1. Am I a C-Corp? If no, then you are not VC fundable.
  2. Am I incorporated in Delaware? If no, then you are not VC fundable.
  3. Am I licensing my patent or other IP that I, the founder, own to the company? If yes, then you are most likely not VC fundable.
  4. Am I paying myself what I am worth? If yes, then you may not be VC fundable depending on the amount. This one is kind of a joke, but early on when you are majority equity owner and your company is focused on scaling you should pay yourself what you need to get by. It is only as you get more and more funding and get more diluted that you should go for more salary. Alternatively, if you take some VC money but then bootstrap and grow revenue, you can take some increases. The basic idea here is that VCs don’t want you to pay yourself a ton of money when you are also a beneficial owner in the company. Just like how we give employees more equity to convince them to take less salary, founders get less salary because they have so much equity. You don’t get rich off salary in a startup.
  5. I understand that VC funding is for unsustainable growth and not as a way to keep my door open for a bit longer? While VC funding will let you keep your doors open longer, the VC expects you to use the money to grow. Even in a down round the VC expects you to grow yourself out of the failure (that is why down rounds are so big; also if you don’t know what a down round is you can read Venture Deals, a book, or Google it).

This all seems fairly simple, also you may have seen articles that say maybe an LLC can get VC funding via some exotic instrument. You may see an article that says incorporating in Delaware nowadays is more a matter of custom and form not a legal necessity. All that may be accurate, especially the Delaware thing to some extent, but it doesn’t matter. Use the checklist. Delaware protections may not be what they used to as other state law evolves but it is well known and stable. Don’t argue just do it if you want VC funding. Preferably you’ll start in Delaware.