Fundraising can be the single most important factor when you’re in the infancy stage of your business. This procedure sets a clear path for your startup, effectively determining whether it has the potential to truly grow in the future. Appropriate funding and fundraising can be vital components that push the development of your business, as there is a plethora of tasks that need ample financing. While all these can be achieved through the proper allocation of resources, let’s look at a different aspect, an often-overlooked facet that can truly affect your fundraising strategy: your brand.
The importance of brand visuals and business structure
A brand is the focal point that will help a product or a service standout in the middle of a densely crowded marketplace. We discussed this idea a while back in one of our articles, stating how brand perception impacts a company’s success, regardless of its type of entity. Consumers are often attracted to the name and look of a company before understanding its culture and values. This is all well and good from a customer’s point of view; however, it’s a different story from a venture capital firm’s perspective. Considering that fundraising opportunities vary from one business structure to the next, let’s look at how your fundraising can be affected by whether you are a limited liability company (LLC) or a corporation.
Fundraising as an LLC
An LLC is an attractive structure for entrepreneurs who are looking to develop a business financed by a small number of corporate investors and/or individuals. But it can present certain challenges for startups that intend on pursuing multiple rounds of financing. One of the crucial steps in starting an LLC is to get an operating agreement, as this prevents any form of miscommunication and settles conflicts between members. On the flipside, bearing in mind that this legally binding document highlights clear and concise definitions of all ownership terms and management decisions, it can pose complications when issuing multiple classes of equity or convertible debt. Not all is lost, however, because if your business currently operates as an LLC, you can still rely on small angel investors, family, and friends, or those who don’t require complex capital structure for funds. Just make sure to formulate an ironclad operating agreement.
Fundraising as a corporation
If you’re a startup corporation, then how you raise funds will be determined by not only those outside the company but also those who have shares in it. This is why venture capital firms and institutional investors prefer C corporations. Having a corporate structure is practically one step closer to a stock market launch or an initial public offering (IPO). This greatly appeals to investors who look at the various levels of preferences, protections, and share valuations in order to get the highest chance of a return. Another reason is familiarity, as C corporations are more associated with large, and often global, companies, while LLCs are more associated with smaller enterprises.
Your business structure is a huge part of your overall brand visual. Whether you’re an LLC or corporation will determine how much funding you need and the best places to look for it. The biggest difference is that funding for an LLC often comes with much less strings attached compared to corporations due to their shareholders. Yet, what is true for both is that in today’s climate every business needs help to get off the ground and succeed.
Written by: Zara Staples