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Raising the first round of funding is a pivotal step for any startup that can set the trajectory for its future success. However, this journey can be daunting, especially for first-time founders. To demystify the process and for practical advice, we spoke with James Atherton, a corporate finance lawyer with more than twenty years of experience serving companies in Vancouver’s junior public market and other early-stage ventures. James is not just a legal expert, as the Founder and CEO of Capiche Capital Technologies, he is at the forefront of developing innovative online solutions that streamline and simplify the fundraising process. Based in Vancouver, Capiche operates at the intersection of legal tech, regtech, and fintech. Additionally, insights from Peter Nieforth, Capiche’s Chief Revenue Officer, complement our deep-dive into effective startup funding strategies.

When discussing his top advice for new founders, James highlighted the critical importance of compliance and thorough documentation. “Paper properly,” he noted, stressing the importance of being well-organized from the start to avoid costly legal issues down the road. “I’ve witnessed numerous instances where startups faltered due to disorganized or incomplete documentation. Investors often shy away if they’re not confident that the company’s transactions, including share issuances, have been completed in compliance with applicable laws and the corporate records are complete,” he cautioned. “Preparing organizational documents, including resolutions and other governance documents, is essential. It’s especially important to ensure every share issuance is not only compliant but also properly documented,” James asserts.

Capiche’s Crowdfunding Platform Streamlines Fundraising Documentation

Documentation is particularly important when a startup has multiple founders. A shareholders’ agreement establishes clear expectations and guidelines for resolving disputes. This is critical in situations where a founder leaves the company or when the business gets sold. Being able to handle these instances according to the agreements and expectations previously laid out could save the company from collapse, James noted.

Choosing the right investors is another crucial step. Canadian regulations allow fundraising through the issuance of equity (shares) without a prospectus to limited groups only, including to accredited investors and to friends and family of the company’s principals. “Make sure your investors are eligible to participate in your financing by falling within one of these prospectus exemption categories to ensure compliance with securities laws,” he advises.

Peter encourages looking beyond traditional venture capital when it comes to raising money. He points out that venture capitalists in Canada invest in only a small fraction of startups, suggesting equity crowdfunding could be a viable alternative, especially for consumer-facing startups that have already built a following. “Crowdfunding not only raises capital but also builds a community of supporters who are vested in your success. It’s also a great way to gain market awareness,” Peter explains.

Marketing your offering is also vital, according to Peter. “You need to be visible to attract investment. Prepare a compelling pitch, backed by a strong demo video, an investor deck, and a financial model,” he suggests, emphasizing readiness to seize opportunities as they arise.

Lastly, discussing the impact of AI on legal services and capital raising, James anticipates significant changes due to automation and AI. “AI will democratize legal knowledge, making essential services more accessible and affordable for startups,” he states, highlighting the cost-effectiveness of platforms like Capiche compared to traditional legal services. This innovation stands to benefit startups by reducing the barriers and costs associated with legal compliance and fundraising.

To sum up, before raising the first round of funding, you should ensure the company has been properly organized and that the corporate records are complete. Then, you can explore which funding method is right and begin attracting investors. Properly documenting your fundraise and keeping complete records not only safeguard legal interests but also mitigate the risk of unexpected challenges. Additionally, startups should look beyond venture capital when fundraising. Consider alternative options like crowdfunding, which can attract a community of supportive investors. By taking these steps, a startup can secure the necessary capital and cultivate a strong network of supporters who are committed to its long-term vision.