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Unknown dangers when signing Venture
Capital agreements
When you're fighting for the money on your business – you would get them, but it may take time and you always need to put focus on making the idea work & to prove yourself on the market place in order to get cash (and/or have experience in the field or related). In one sentence: you would find the investor if you won't surrender.
When you would get it – the investor would say: "yes", you would need to form a limited partnership (to have rightful ownership of part of the company), because money always come in the form of the exchange, for the part of your business. However there are
some issues you may want to know, before you would sign the agreement with the private/Venture Capital funds (or even single investor). We would skip, the part – that when e.g. investor pays for your company 100,000 for 20% of shares, he is valuing your company at 0.5M, so in order to get the return on his investment company needs to reach that value (read it
one more time) – and focus only, what's important for you to know when signing any contract/agreement.
When you're signing any contract – always want to get an option of preemption (that you're first are allowed to buy shares/whole company or to suggest another buyer in a specified amount of time).
Why it's important? When you're starting your e.g. first company and you would get the funds, investors want to secure their shares due to increased risk, so when you've got less than 50% of shares (e.g. 49.9%) and the same voting power in the supervisory board – your company can be sold under its real value and you've got barely nothing to say (buyer wants the
whole 100% of shares and you need to sell it unless you've got the "gold action" [term used in Polish, refers to "blocking power" of company buyout, often used in a public "state" companies).
What I could or rather would suggest, that I for example (if I would be an evil man) would act in the stake of my other company, which is in the field (mirror–mirror company, which nobody can trace to me, in which I would have stock) – when I would
have larger company shares all on my own (or with other [my] partners) to cut a deal and to suck the suckers from their shares as they've got barely nothing to say & no power. In result: acquiring company for pennies on a stock and making a huge deal for myself (I would make sure they would feel as "WINNERS" and would party with them the "SUCCESS"!, in reality: having
all their company shares bought, in my company [they would never prove me, so – and even, if so: they're winners, right?]). In simpler words: I form a limited partnership with people (investing in them money for getting shares in THEIR company), I get 51% of the company – they work for e.g. 3-4 years, making company successful. I then, put (in order) of my x company, that I'm not directly connected, but I hold large shares in it – offer this (mine) company to
buy it for NOT its real value, that its worth, e.g. co. is worth really 25M and I put an offer of 3M – they need to sell it, as my company which I have shares in – wants to buy ALL 100%. I'm acquiring the 49% remaining shares for a pennies, all are winners (including the founders). SEE IT? I wanted only to portrait on an example, what could happen. Everything off course would be perfectly legal, know that. Would you consider it moral? "Everybody wins? yes?"
Imagine working for years and then be sold for a pennies on dollar. Yo need to rethink it all through, before you would get into the action, unless you want to be fucked (or to create such possibility).
Even when you've got 50%+ shares, make sure there is such point in the agreement, because you – as a director of the company, you may be put away from the board by people who don't participate in the company, as they may show that you're working on its loss.
(I don't know how it looks in other countries than Poland, as I might suspect that its maybe not identical, but in some sense of way: exists) MAKE sure you're company is inherited by another.
At least in Poland, there is a Law (and NOBODY knows about it! even in the funds [!]) that you're duty is to pay 19% (exactly) TAX, after 5 years of forming of the limited company partnership, when you haven't put equal amount of cash that your partner.
In practice it means, that when the fund (it doesn't matter if the money went from EU [European Union] or from private investor). If on paper is that, the fund took 15% of shares for 100,000 PLN (and YOU didn't put, equal: ~567,000 PLN, getting 85% of shares) – you need to pay from 85% of shares (valuing company at near 6M), so over 0.2*6M = 120,000 PLN of TAX!
Who wants to give over 100,000k of tax for nothing? Just put into the trash or burn, when you not need to pay this tax, only by creating a company, which would inherit company? Who? I think, that only Joker.
I don't know how to escape from this, but it's better to prevent such situations.
In result, VC fund (private investor) mainly: doesn't care or don't knows about it (but who cares?). You're staying with the quite huge cash to pay and in the face of (probably) bankruptcy. I don't know how it really looks, I don't want to – better is to know, before – as I do. It's a trap that could be avoided when carrying such knowledge.
IN POLISH [PL]: "spółka musi być wniesiona aportem do firmy w dniu wniesienia udziałów do nowej spółki". You create company and then put it (in the same day) all the company in apport (PL: "aportem") in the same day of getting shares of the new company.
CHEMISTRY with the investor / venture capital fund.
If you don't feel it – it's better sometimes to resign. Although it's your task to do. It should be, that you're the person desired & they should show gratitude that you would allow them to earn. Shift of focus & perspective changes everything. Keep it simple & crystal clear (rules).
If you don't like the papers – you must to switch your likability, because it's a part of business and you've need to got everything on paper, scanned and sent over 10 mail servers (not connected to themselves).
