Ep 26 – Fundraising Essentials – the Legal Issues




Heidi Abdul is co-founder and COO of Afissio, LLC. Afissio helps founders with the legal and compliance for early-stage fundraising transactions. Heidi has over 25 years of experience working in boutique corporate law firms assisting companies with formation, restructuring, redomestications, private fundraising, mergers & acquisitions, Regulation D compliance, trademarks, due diligence, and cap table management.

She has managed hundreds of corporate and securities transactions for clients in medical technology, DeFi, SaaS, green energy, investment funding, transportation, construction, real estate, engineering, consulting, and business development.   In addition to her 25 years of high-level corporate transaction experience, Heidi has a bachelor’s degree in Business Management and a Master’s in Business Administration. 


What are the hidden dangers that lurk in the unsexy foundations of your business that can trip you up?

How can you make smart and strategic decisions about the most basic steps, like how and where you register and incorporate your business?

What do you need to do before you take the first outside dollar to protect both yourself and your company so you don’t get blindsided down the road?

What simple steps can every founder take to make potential investors happy, and your own life much easier?

In this episode, Heidi Abdul, co-founder and COO of Afissio, LLC, provides an easy-to-understand and actionable guided tour of the basic legal and corporate infrastructure you need, to be successful as a founder and fundraiser.

Important note: The views and opinions expressed during this episode are those of the presenter and do not represent legal advice.  The podcast episode is based solely on the professional opinions and experience of the interviewee and is made available for information and experience sharing purposes only. 

Episode Highlights

  1. An overview of the most important corporate topics every founder needs to know
  2. How to select the right organization structure for your business, and why it matters
  3. Common mistakes most entrepreneurs make in the early days, and how to avoid them
  4. What you should know about organization structure if you plan to take outside investment, or even if you don’t
  5. Why it’s important to engage a tax professional early, and why their input matters
  6. Why jurisdiction matters, and how to select the right jurisdiction for your business
  7. The big mistake many entrepreneurs make with capital, and ways to avoid it
  8. Why you should be careful after getting the first check, and why many entrepreneurs fail because they don’t pay heed
  9. How to improve your odds of getting a favorable valuation
  10. What you need to know about structuring equity, and how it can hurt you if you don’t
  11. A primer on the single biggest tool for fundraising, the cap table, and how to use it to strategically improve your funding outcomes
  12. External risks that can tank your fundraising, and how to prepare yourself and your startup for rainy days
  13. A primer on the commonly used funding instruments in early stage ventures, and what to know about each
  14. How to make due diligence and fundraising easy on yourself from day one
  15. The simple secret to getting the best funding terms you can, that anyone can learn, and how it pays off

Links and Resources

Afissio: Legal and compliance service provider that Heidi cofounded

Afissio YouTube channel: Afissio’s YouTube channel with

NVCA Model Legal Documents: A set of model legal documents provided by the National Venture Capital Association 

Interview Transcript

Shubha Chakravarthy: Good afternoon, Heidi. Thanks for joining us today. We’re real excited to have you here.

Heidi Abdul: It’s such a pleasure. Thank you for the opportunity.

Shubha Chakravarthy: So you had a pretty interesting career  journey leading up to Afissio, LLC. What brought you to this point in founding this company?

Heidi Abdul: That’s really interesting. Up until that point, I was a lifer in the law firm setting handling corporate securities transactions from start to finish just in the throes of it. And with that you hear many startup stories, many startup mishaps you see, and there’s many strapped startups that come to you. But I think the main thing that made me really take that leap is this:

Not only are you paying a high price attorney for your Series A transaction, but you’re also paying a really nice chunk of legal fees to your investor counsel. So essentially you’re paying for both legal bills in the deal. That’s a significant amount of money that comes right off the top of the funds that you just worked so hard to raise.

I knew I could bring these services to the startup community with a more economical approach. Just about 60% of that billable hour goes to overhead. The law firm model has just been around for so long, but it is just not conducive to the startup community that needs these services so badly.

So after living through so many of these transactions and listening to the feedback from the founders, I broke free, took that 60% right off my billable hour and brought the services to the startup community.

So that’s how I started.

Shubha Chakravarthy: That leads me right to my next question. Tell us a little bit more about Afissio does.

Heidi Abdul: Basically Afissio provides legal and compliance for early stage companies that are raising money. My business partner and I spent numerous hours developing a corporate timeline that a typical startup might follow.

We listed each corporate decision from formation, getting an EIN, bringing on help, documenting services, filing for a trademark, getting money from friends and family all the way through several rounds of fundraising. Then we grouped these decisions, documents, processes, et cetera, into what we call modules and all these modules fall naturally on this corporate timeline.

Our modules start off with corporate formation. We have corporate conversion –  When you want to convert from an LLC to a corporation. We have a brand module for registering a trademark, early stage module for friends and family rounds, pre- preferred module, preferred module, and so on. There are more, but that’s the main idea.

And each module comes just jam packed with all the documents, guidance, legal advice, coaching, cap table management that founder needs to complete that particular portion of the corporate timeline. And what I feel is the best part of our model is that each module comes with a flat fee.

There’s no hourly billing. We get so much feedback from startups telling us that they hesitate calling their lawyer because they’ll get a bill every time they make a phone call or every time they send an email. This is where the problem starts happening – they won’t call to get the advice they need because it costs so much.

So we came up with the flat rate model that comes with unlimited access to us. So that’s Afissio

Shubha Chakravarthy: Pretty interesting. So it sounds to me like a combination of a prix fixe plus a Chinese menu model of all the legal services that a startup firm would typically need. Is that a fair characterization?

Heidi Abdul: Yeah. Through their corporate journey. On the corporate side, yeah.

Shubha Chakravarthy: Let’s walk through what that journey looks like. You’re an entrepreneur, you’ve decided to undertake this journey. What are the high level milestones from your perspective that she needs to keep in mind? And what does each of those involve? Just high level.

Heidi Abdul: So if you’re just starting out, getting things organized and setting some goals. There’s some things you need to do. Get your entity formed. Don’t put this off. Register it with the state and get an employer identification number.

As far as jurisdiction, we usually recommend Delaware, Wyoming, but do some research. Which state has the lowest taxes? The annual filing fees?  And remember jurisdiction may or may not be important.

Get your cap table mapped out. From formation through, say, three or four years of projected growth, you can do this. This is a key step in entity structure. Your investors want this information, so having your cap table in order will save you from fumbling, down the road.

So when you set your goals, remember or especially for fundraising, remember to include how long it will take to reach that goal, how much it will cost, including paying to keep the lights on, and what additional help you’re going to need to get there.

So have this clearly laid out. You can project these things, it just takes a little homework. Those are the things I focus on.

Shubha Chakravarthy: Let’s start with corporate formation first. You said right off the bat, you need to be forming an entity. Are there any exceptions to that? What are the considerations I need to keep in mind as an entrepreneur? Can you walk us through that whole process of corporate formation?

Heidi Abdul: I can break down corporate form. But I think just getting an entity formed is the main key. And getting a separate identification number, you want it separate.

So LLCs are simple and in many states, annual maintenance is so easy. We have so many startups that are formed all over the country, and that’s fine wherever they’re formed.

Forming an entity will start to build credit. And keep the entity transactions separate from your personal assets.

It’s important to document everything. I mean, everything. So any contract should be signed through the company. You want to keep liability away from your owners. So having the entity that does the transactions, not the individual, will provide some of this protection from you. So it separates you from your entity.

Shubha Chakravarthy: Which is great and it leads me to, I was talking to a mentor who mentors entrepreneurs. He’s an experienced entrepreneur himself, and he was telling me about a woman who started a business and she was raking in, I want to say $2 or $3 million in revenue every year in cash receipts.

It’s an e-commerce business, and he said she didn’t even have an accounting software installed until two years in. Now, I know that’s not advisable, but my question to you is, are there circumstances  when it’s okay to defer forming that entity. And if so, what would those factors be?

Heidi Abdul: In e-commerce the situation is, if it’s just you, you can generally work under a “dba”(“doing business as”) and that’s fine.

However if you’re going to be doing any of the transactions that Afissio assists with , that’s a different story. I get cash is really tight for startups. I so understand that. But if you have a couple years of startup under your belt and there’s no documentation, you’ll have a terrible time recreating those events and then documenting them up properly, you may not even be able to do it.

This gets you into a lot of trouble and no investor will take a look at you until it’s fixed. If you have a business partner say, and that partnership sours, what do you do? Having corporate formation and your proper internal governance documents that set forth these processes for these events, they’re going to save you so much pain in the future.

And cleaning up later is more costly than doing it right from the start.

Shubha Chakravarthy: Sounds like there’s certain triggers that definitely indicate you should be forming an entity sooner rather than later. If you’re in business with anybody else, if you’re transacting with anybody else, sounds like you want that cover of liability protection. Those make sense to me.

So you mentioned a couple of words, , LLC,  D B A, corporation. Can you walk us through what are the high level choices an entrepreneur has in terms of entity? When does one make sense versus another for those of us who are not familiar?

Heidi Abdul: The clients that come to us fall into three basic buckets, I would say, as far as corporate entity formation. There’s, more, but these are the main ones. There’s a C corporation, an S corporation, and a limited liability company. The differences between them, in many cases, and this is very high level, is it really boils down to whether you want to take on investors and the taxes.

So C corporations are double income taxed at the corporate level and at the personal level, but they’re more attractive to investors because of the capital gains breaks they get.

S corporations limit the type of equity you can issue. They limit the number and type of owners you can have, but are more favorable to owners because the owner can take a salary, which is taxed lower.

LLCs can be taxed as a partnership and typically are where the expenses and income trickle down to the owners. They either pay tax on the income that’s from the company or they get a deduction for the expenses. So that’s those three at the federal level. So corporations and LLCs differ at the state level too.

Some states charge higher franchise taxes for corporations than they do for LLCs. So some thought has to go into that, some research, but there’s more. But those are the key considerations our clients are taking.

Shubha Chakravarthy: So it sounds like if you know for a fact, that you’re going to need outside investment, either S or C corp is the right way to go.

Is there any situation, let’s say I’m starting up, I don’t have a lot of ambition. I started an LLC. Is there any downside or any future costs I’ll end up paying or some disadvantage if I end up growing outside my wildest dreams and suddenly I realize I need to take on more investors?

Heidi Abdul: So there’s no harm in taking on investors in an LLC. That’s a very good question. That can also depend on which investment vehicle you use.

If you use a convertible security and you’re still an LLC, you don’t have to worry about being a corporation at that particular time. You may have to convert to a corporation once that convertible security converts.

So there are ways that you can remain an LLC, even when you take on investors. It depends on the circumstance.

Shubha Chakravarthy: You mentioned tax a couple of times. Not just from a capital gains and income tax, or from an appreciation perspective, but even for expenses, salary, things of that nature.

What are the top two or three buckets of financial implications you need to keep in mind before you make this decision about organizational form?

Heidi Abdul: For getting tax advice, there’s other things that come into play that have nothing to do with corporate organization. They don’t have to do with you being a corporation or an LLC for the most part.

And that’s determining your value. You need to hire a tax professional when you need to determine your value.

Like when you raise money, what’s your company worth? Say you want to implement an equity incentive. What’s the price I can pay for one share of my equity, that type of thing. That’s the tax information that you’re going to need when you’re setting some goals too. So keep that in mind.

Shubha Chakravarthy: So from a raising capital perspective, very clear implications. And then also from your income and expense tax implications is also one angle, is what I’m hearing. Is that a fair characterization?

Heidi Abdul: Let me just say from the get-go, get advice from a tax professional before you even form your entity, get advice from a tax professional before you take on service providers, get advice from a tax professional.

They’re going to be working right along with you, along with your legal counsel. That’s something you’re going to need for all your major decisions –  how it not only affects me, but how does it affect my company and how does it affect my investors?

Everything that happens in the company, all throughout the whole cycle, you need tax help.

Shubha Chakravarthy: One thing you mentioned earlier, you talked about how it depends on the state and different states have different requirements, and that brings up the question of legal jurisdiction.

How should an entrepreneur think about jurisdiction when forming their initial entity? And then later on, are there downstream implications that I might need to consider even at the get go ?

Heidi Abdul: That’s a good question. Selecting an entity location will depend on your future plans more than anything.

So for example, if you don’t plan on raising money for a couple years, a simple LLC in your home state, where you are living, that’s fine. It’s easy to convert later.

You can convert it according to how your investment person dictates later. So if you plan on raising money right away, form your entity and state in a state that investors like, like Delaware, by far the best, or in Wyoming, which is almost as good as Delaware now.

Now Delaware has a unique way of calculating taxes for corporations, not LLCs, but for tax, for corporations. And in many cases it can be very expensive. If you’re a very asset heavy corporation, this can cause a higher franchise tax.

I’m not talking about corporate income tax or anything. This is a franchise tax. This is something that should be considered. When selecting your jurisdiction, what do they charge you? What are the methods for determining that number?

In some cases you may not have a choice on jurisdiction. Like we said earlier, your investor may make jurisdiction and entity type a condition upon bringing in the money.

Shubha Chakravarthy: So the one thing that’s emerging from this conversation, even at this stage is that it sounds like you need to have a pretty clear idea what your total capital requirements are going to be, at least in the near term.

Any thoughts or tips on how you’ve seen entrepreneurs do a good job of estimating their capital, which then leads to all the other downstream implications?

Heidi Abdul: It’s a lot of research and I don’t see a lot of entrepreneurs and founders doing this very well. So what investors like to see is they want to know how you’re going to spend the money. So this is what I said before. Lay out the plan, how long the money is going to last, and what you need to get to that goal.

How much is it going to cost? Am I going to need to bring on a project manager? Am I going to need to pay extra for some software I need to run the business? Do I need to rent office space? Do I need to bring on some office staff?

All these things need to be built into that projection and your investor is going to ask. What are you going to spend my money on? And then you’re going to have to prove it up later.

So it’s a lot of research and you can map it out pretty thoroughly through that type of research. You can look at other companies and what they do that are similar to you, and that’s always a good foundation to start this research.

Shubha Chakravarthy: Are there pitfalls or typical mistakes you see entrepreneurs making in that stage in terms of estimating capital, especially with the lens on women entrepreneurs?

Heidi Abdul: What I see happening is they don’t follow their plan that they mapped out after they’ve received money.

It feels good to get that first round of money under your belt so you could just hit the ground running, but what I see is they try to grow too fast.

And try to bring on too much, just thinking that it’s all going to fall into place. And it’s easy to do that because it’s exciting.

You can finally implement your mission. You can start living your passion and things like that, but you have to just hold yourself back. I see the mistakes happening after that first round trying to grow too fast and the money’s gone before you know it.

Shubha Chakravarthy: And then they’re back to being forced to raise when maybe they’re not ready for it or they don’t get terms as favorable as they would.

Heidi Abdul: That’s right. And their valuation might be lower at that point and you don’t want to go backwards.

Shubha Chakravarthy: One other follow up question to the last point you just made, which is around estimating the capital. You made a point to go look at other companies that are similar to yours, understand what it means.

That’s pretty opaque data for early stage companies. So what have you seen entrepreneurs do in terms of getting good data for those kinds of estimates and doing that kind of research?

Heidi Abdul: Yeah. You hire an evaluation person. This is where I say the tax professional comes in. We have a preferred partner we use that works with these early stage companies. They help you determine the valuation of your company.

This is key because you need to substantiate this when you’re talking to investors. When you walk in and say, my company is valued at X and I’m going to sell you this for this price, and this is where that tax professional is handy to have when you go in.

So if you can’t do the research on your own, and some can. But we are always recommending that the startup founders go to get a professional evaluation done.

Shubha Chakravarthy: Don’t try this at home?

Heidi Abdul: That’s right.

Shubha Chakravarthy: Let’s move on to capital structure. Equity structure. I know it’s a very complex topic, so you go in, you know you’re going to raise a pot of money, whatever, X number of dollars that is at a high level, what should an entrepreneur be thinking about in terms of structuring that equity? Unless it’s convertible debt.

But if it is equity, you need to hand out slices to your co-founder, early employees and then they’re future investors and you need to keep some for yourself. How should you be at a high level thinking about equity structure?

Heidi Abdul: So do it on a step by step. Show your progression to yourself.

So you have your cap table. This to me is your structure. It provides you with a very clear picture of your ownership what it looks like at formation. You want to have this through a couple of rounds of funding, you want to have it all stage by stage by running pro forma projections, after you set your goals. It shows how your founder ownership gets diluted with each major stage.

So you start with founder owners. That gets divided among them, and this should be done based on what they bring to the company, and that’s something you work out internally. So the next step, like you mentioned, you want to bring on people to help you service providers like office administration or even in an advisory board.

You can compensate these people through an equity and incentive stock options. You have to understand there are limits to these plans on what you can and cannot do with them. This is a key step to your structure so you don’t violate the IRS regulations.

Then you can project what you’re planning to raise in your first rounds, your early stage, like convertible securities and plug that in. This picture that you’re building will help you make some very important decisions. What’s crazy is so many founders don’t do this. And then they need to clean it up later. That’s really hard to do.

So having that all on this equity structure, your cap table, every time you issue this equity, every time you grant a stock option, anytime any document mentions your equity , it affects your cap table, and that’s something that needs to be focused on at all time to keep current at all time.

Shubha Chakravarthy: So big question. We’ve talked about the cap table, and this is a term that may not be familiar to many, especially first time entrepreneurs. We’re not in an entrepreneurial hotbed. Can you give us a high level, walk us through what a cap table is, why it matters, and then how a typical entrepreneur should work with her cap table from the get-go and as she raises maybe pre- seed all the way through Series A.

Heidi Abdul: Like we’re talking about, the cap table is your equity position chart. It can be a simple Excel spreadsheet and that’s what I prefer to do. You list every person who owns the equity, whether it’s voting or not voting who’s making those decisions at the company.

Another section of the cap table is going to show the convertible equity, such as the stock options, the convertible promissory note, the SAFEs, the warrants, all the things that are reserved there. They’re not actual equity yet, but they’re a placeholder for when they convert later, and that’s the fully diluted capitalization table.

What fully diluted means is it shows what every equity position has for everyone is if they all own the same kind of stock. That’s what investors look at, that last column on the cap table, and that’s something that needs to be tracked all the time. Your investor looks right at that cap table, they ask you for it every time.

In part you can generalize it, pro forma out your fundraising round in your pitch deck. You can say I’m selling 20% of my company for this amount of dollars, you could project that out.

You also need to paint this picture to keep in mind that showing the effects of the convertible security or whatever fundraising vehicle you’re using on your cap table. And then seeing how it affects not only you, but your other stakeholders.

It’s a wakeup call because then you can see, “Wow, do I really want to give that much away? Do I really need that much money? Let’s rethink this”.

These are the things that have to be projected out, calculated, out, thought through before you even talk to an investor. You want to understand the terminology that you’re using that affects this cap table in this fundraising transaction project, the highs and lows of that term and how it affects your cap table.

And don’t go in with your best offer either. Create some scenarios. When you’re running the effects of the investment vehicle on your cap table to understand, well, I can give you a 20% discount, even if you came and started with 10 and they’re hesitating, well, I can give you 20 and you’ll know immediately because you ran the scenarios. That’s the advice that I give on that.

There’s, more and there’s a lot of times you have to just revisit it often to re-familiarize yourself with it to where it comes naturally.

Shubha Chakravarthy: That’s really helpful. You mentioned that even at the get-go, you should have some vision of what your cap table looks like.

Does that mean that starting out, I know roughly how much capital I need and how it’s going to be split up among these various constituencies. For example, outside investors, the founder, if you have co-founders, how much goes at a high level, to early employees, advisors.

Is that something you should have even at the get-go? How would you even know going in, what that should look like?

Heidi Abdul: I do it for our clients all the time before we even form their company. We start off with the first stage corporate formation. Who are your founders and how much equity are they getting?

And I put the picture in front of them. And so this person has 20%, this person has 30% of this, one has 40%. And then we assign a number of shares to that, because everybody’s dealing in percentages. And that usually gets you in trouble. You have to have specific numbers because you don’t know when that percentage occurred in your timeline.

And then we map out the next stage. You plan on bringing on service providers. So part of that is the equity incentive plan, and there are IRS regulations you must follow as to the size of the equity incentive plan. And we plug that right in, whether they’re doing it right now or later.

We put it on the cap table and we leave it there until they do it in the future, because it’s always part of the plan. No matter if they have other transactions that come before it, we leave it there. Investors like it anyway. And then we can say, well, we plan on raising money in a couple years.

What are your plans? What’s your goal? What do you need the money for? How much money do you need? A lot of times the clients will have a really good idea. They know how much of the company they want to give away. They say, “Well, we see a lot of companies give away like 20%”, or they’ll do 10%.

This is where I say, get your valuation done. And then we can determine, the effects of your fundraise. And once we have that information, we plug that right in, and we can do that before they raise money a year down the road. And those things adjust as we go before they’re implemented, but they’re always there when the client goes back to revisit the cap table.

So when they set other major goals, they’re like, “Oh, right, I have to understand what this next goal does to my cap table and my fundraising in the future. Say if I want to bring on a C-level and they need a good equity position. So what does that look like on my cap table and how will that affect my fundraising in the future and what will my ownership look like when that happens?”

So these are all things we can do and we can play with and make the table functional where they can change one of the cells on there and it just flows right through. So this is something we do from the very beginning.

Shubha Chakravarthy: And one little question on that. Valuation is like the wild card. It could vary based on so many things. Early in 2022, the valuations you were getting when the market were good versus in now everything’s tanked and suddenly you can’t raise anymore.

How do you deal with that wild variation in helping the entrepreneur plan for those kinds of swings and still making sure that they not only get good capital, but they also manage to get what I’ll call an equitable share of their company.

Heidi Abdul: It’s, not easy. Say they raised money a little bit ago and then now they need more money now, and all of a sudden the market’s way down and then they have a down round. it’s an unfortunate position to be in, but it does happen.

That might be the opportunity to take smaller amounts of money before the big raise, so in the event the market turns upward. A lot of budgeting has to go in:

Do I have to scale back the company? Do I have to cut my costs a little bit? But you do have to deal with the economic swings.

And it does take a little bit longer to get the money raised. And remember, valuation is subjective. It’s not a hard and fast rule, but there’s someone out there that will pay. So it may just take longer.

But yes, you do have to deal with the down swings, and that’s the time where you just don’t raise as much because it’ll have such a larger negative effect on your fully diluted capitalization. So keep that in mind.

Shubha Chakravarthy: So, one other question related to the cap table. You have a choice of different instruments through which you raise money. And not all of us may be familiar with all of them.

Can you give us a high level walkthrough of what are the most common instruments used or the means used at each stage of funding, starting from pre-seed all the way, maybe through Series A.

Heidi Abdul: There are a lot of ways to raise money and for different rounds of funding. But what we see most often are a specific progression that people go through.

In a friends and family or a pre-seed or even a seed round, you might consider a SAFE, a “Simple Agreement for Future Equity”, or a convertible promissory note.

These are convertible securities. You want to maintain voting control at these early stages. You don’t want investor bothering you, so they are off the cap table. They don’t make any decisions. They can’t vote. So these are the perfect vehicles to use in the early stages.

So the SAFE is perfect for the first timer. You can raise smaller amounts. They’re so simple. The documentation is easy. The terminology is easy. There’s no maturity date on a SAFE, and there’s no interest accruing. So it’s basic principal investment and you aren’t restricted heavily on that.

So the convertible, promissory note that’s used – angels like those. You use a convertible promissory note when you show you’re on a rapid growth trajectory, so your next round that they convert into is going to be a really high valuation. Angels like that – they anticipate that they’re going to get a smoking deal on the equity that note converts into.

So those are the early stage vehicles to use and we see those all the time.

If you’re going to go straight to sell equity, and in some instances some companies do, depending on industry, you might sell common stock. or common units. So here’s where you would use a private placement memorandum.

Some people call it a prospectus or a disclosure document. It’s very detailed, voluminous. It has bios, financials, it has projections, risk factors, lots of company information. It’s used when a company has some historical information to disclose and they’re raising a larger amount of money. It’s expensive to prepare.

I’ve prepared PPM’s for a quarter of a million dollars to $200 million. It’s the whole range. But it is structured for the savvy investor. They know what they’re looking for in the document and they go right there to see if it’s viable. Like Series A, those transactions are for VCs.

And there is a standard set of documents that was developed by the National Venture Capital Association. It’s investor intense, due diligence heavy. The preferred stock comes with a laundry list of rights and preferences for the investor because they want to control what happens to that Series A going forward.

These funding rounds can go to, I don’t know, $8 million, but they’re going higher. But those are the forms that are used when you’re reaching your big hurdle, like FDA approval or you are going to market, you want inventory, those big hurdles. Those are the basic forms that we see.

Normally there’s others and other ways to raise money, but these are the types that our clients use.

Shubha Chakravarthy: Just a couple clarifying questions. I was talking to an angel investor who said that she doesn’t like SAFE’s because it kicks the can down the road essentially because you’re leaving all the specifics of the conversion to the future.

And then there’s another negotiation that you’ve already set yourself up for. Which obviously could have favorable or, unfavorable outcomes. What’s your take on SAFE’s from the point of view of entrepreneurs as well as from the point of view of investors?

Heidi Abdul: Yeah you’re absolutely right.

Angel investors are not as favorable to SAFE’s as say, friends and family. That’s why the angel investor likes the convertible note. So they’re getting a bump in interest that they’re accruing, and then there’s a definite time for when the note will convert.

Now, from the company side, the SAFE’s are fantastic, right? I don’t have a deadline to worry about for when this converts and it’s not accruing interest and they just sit out there in oblivion until I get my things together with my company and then I can make my next goal.

So you’re absolutely right. There’s pros and cons for both. Angels tend to like the convertible note. It’s almost like, okay, your next round’s going to be pretty high and that’s why you’re using a convertible note. That’s what they’re thinking.

Shubha Chakravarthy: That’s really helpful too. I’m getting a clearer picture. If I were starting entrepreneur doing early rounds, friends and family, favorable audiences use a SAFE note. They give you grace and time to get all your stuff together, make sure you’re delivering on your milestones and whatever traction you need to demonstrate, and then the moment you start going to angels and further on, it’s going to start getting much more rigorous in the terms and what they’re expecting from you as well. This is the picture I’m getting from listening to you.

Heidi Abdul:  That’s correct. From starting out and going from one round to the next and the next, your due diligence gets heavier and heavier and heavier.

Now with the SAFE, your investors are like, “We know you’re just starting out. We know you don’t have anything to show me, so here’s a few bucks”, basically.

And then with a convertible note, your angel investor’s a little more savvy. They’re going to say, ”I want to see what you have in place for your documents. I get where you’re going with this, but I want to see that you’re compliant”.

And then the equity rounds it’s “Show me everything”. That’s where it gets heavy.

Shubha Chakravarthy: So this naturally brings us to the point around your legal hygiene and documentary hygiene. What are the things that an entrepreneur needs to do to keep their documentary noses clean, so to speak, from the beginning?

Can you just walk us through what those are and what I should keep in mind as an entrepreneur?

Heidi Abdul: Keeping it nice and tidy. Investors want to look under the hood and even though I say in the SAFE round that we know you don’t have anything to look at, they still might ask.

They want to know what your corporate documents look like. Are you compliant in the state of the organization? Have you paid your annual fees? Have you documented any services, like, people you work with, customers, distributors, all those things.

What does your cap table look like? Your investor wants to see how much they’re getting and you want to be able to produce this information immediately. So have this all in place. And you know what happens? You get your money faster.

Shubha Chakravarthy: So is there a checklist of documents or a resource that you would recommend for someone who’s starting out and saying, “Let me just make sure I’m diligent from the get-go”.

What is the list that they should start with? Or is there a place they can go to get a list so that they can start checking off and putting it in either a literal or figurative file?

Heidi Abdul: That’s a really good question. I don’t get asked that very often because I think everything is just wide-eyed for everybody going into it. It’s all brand new and they don’t necessarily know what questions to ask. We don’t necessarily provide a checklist, but we provide all of the guidance that you’re going to need for all of that.

And then we put all this into our modules, like our corporate organization module has all of these things in it. It has the cap table the modeling out. It has the equity incentive plan, the corporate formation, the documentation for bringing on advisors. The documentation for bringing on a couple of employees.

And then the grant documents from your equity incentive plan, all of these tools that you need to do that portion of the corporate timeline. And then naturally the next thing might be to do your trademark filing or do or raise money. So that’s a really good question. I might think about putting that together.

Shubha Chakravarthy: And if you do, let us know because I’d love to be able to point people to it, because that’s my first question is what do I need to have in place?

So then moving on to the due diligence process and all of that, one of the things I heard in my conversations was, one way to really impress your investors and already get after a great start is to have a data room ready.

Can you talk a little bit about what a data room is and at what point should I think about it? Where should I host one? All of those things that I might have as questions on my mind.

Heidi Abdul: Great question. And this is one of the services we provide in our modules is a data room for our clients to store their documents that, that we prepare.

But it can be done on a Google drive. We use a nice secure cloud storage that we allow access to investors at the discretion of our clients. The data room needs to be organized and the documents need to be labeled clearly.

And we set the data room up into different sections. So like corporate organization, capitalization, equity, incentive plan agreements, service provider agreements, benefits, and these folders contain the documentation for these transactions that have taken place. and this is the place that the investor goes to view the documentation for the company.

That way there’s not this back and forth stuff. They just get access to your data room that you have there, you maintain, and whether or not you’re raising money, it’s there.

It’s updated every time you enter into an agreement, every time you issue equity, it’s updated so you have it there. This bank of information for looking under the hood, so to speak, for an investor.

Shubha Chakravarthy: Moving on to the process and women entrepreneurs in particular. So you’ve talked about a whole bunch of stuff that figuratively lifts the hood, so to speak, to see what’s happening underneath. Can you talk a little bit about your experience with women entrepreneurs?

One thing I’ve heard or read is that women on average tend to get less money at a lower evaluation for a higher percentage of the company’s equity. What have you seen in terms of –  first of all, is this true in your observation?

And secondly, if so, what drives that kind of outcome? And thirdly, what can entrepreneurs and particularly women do to give themselves a better shot at more favorable outcomes?

Heidi Abdul: So I haven’t seen that, but what I do see happening is too many founders let people tell them how the deal is instead of taking charge of the deal from the start. So it’s easy to let this happen if you go in unprepared without your documentation, and really if you lack confidence. So if you take the time to understand all these aspects of the transaction, you know what you’re asking for, the facts.

You’ve done your homework, you’ll know what not to do. Now remember, you know your business better than anyone and that gives a person confidence and a passion and a sense of knowing what you bring to the table.

So that should show during the fundraising as well. I’ve listened to so many people pitch and when they come up there and they’re a monotone, they don’t get funded.

But when they come up there and they’re just full of energy, so excited about their project, they may not be able to articulate it to the best degree, but they love what they’re doing. Those people get funded more times than the other.

But it’s important to note here though, once you have an investor, that person’s going to be with you for the life of your company.

So you need to know that investor. What else have they funded? Are they easy to get along with? Do they dictate too many restrictions that make you uncomfortable?

And also remember you can say no. So that’s key when you’re talking to someone.

Shubha Chakravarthy: And along the same lines, have you seen, and this may not be empirical empirically provable, but have you seen founders who exhibit a greater level of knowledge and understanding of the financial aspects of fundraising, end up doing better deals or making better terms for themselves versus those that potentially maybe rely on somebody else or not as knowledgeable about these things?

Heidi Abdul: I think what that’s going to boil down to whether you’re a financially savvy person or you hire someone to help you is you do need to understand the financial aspects of the transaction.

And you do need to because they’re going to affect the decisions after that transaction’s over. And it’s going to affect the transaction going on. The next time you raise money, that investor’s going to know what brought you to those decisions the first time you raised.

So whether you have the MBA in finance or whether you hire someone to help you, you do need to understand the financial aspects.

So it’s really key to surround yourself with someone who can assist you with that. It’s so important get the resources, to get the information, like your podcast or there’s books to read.

Just never stop learning about these things and keep following the people who keep put out information, like lawyers who keep putting out information on LinkedIn of these transactions and how they’re affected, especially in today’s economy and things like that.

There’s a lot of them out there that just put content out on the daily. It’s a good habit to fall into, but yes, the financial aspect is key.

Don’t hesitate to reach out to someone to ask a question. They may just say, yes, I’ll help you. Don’t hesitate.

Shubha Chakravarthy: So last couple questions. First of which is, if there were five things, five traits, five behaviors, five actions that you’ve seen successful entrepreneurs do over and over again in terms of being successful at organizing their financial affairs as well as getting favorable terms, what would those be?

Heidi Abdul: From my perspective and it’s from how I view this process helping the founder get ready to raise money. It’s how we help prepare. And it’s what we’ve been talking about. It’s that cap table. It’s one of the most important data set your company maintains is your cap table.

It’s unbelievable how overlooked it is. And your milestones. Map out the milestones for the first two or three years, and like I say, figure out how to get to those milestones. How much money will it take, how much time does it take to get there and then who do I need to help me, whether it be the financial advisor, do I need to hire a CFO?

Those types of things. Timing, like I say, how long will it take to get there? How long will the money last? You can figure out these things ahead of time so you can plan your future. Another thing you should plan on is, am I only raising money once? Is that as far as I need to take it before I get to my main goal?

What if I do need to raise money again? What does that look like? What is my cap table going to look like if I need to raise money again? How much time does it take to get there, to that goal, who do I need to help me get to that goal?

And then, like I’m always saying is, have your documentation up to date from formation all the way through every transaction, whether it be as small as I’m renting a copy machine to as big as selling preferred stock document, everything.

Shubha Chakravarthy: So, in terms of let’s say I am where I am, maybe good, bad or indifferent, and tomorrow morning I want to be better. What Monday morning tips would you give an entrepreneur to get on the path of being as organized as, you lay out and what have you seen work for those that you’ve worked with maybe that weren’t as organized, but got their stuff together?

Heidi Abdul: It’s just what I just said. Maybe I could talk about the fact that so many founders and entrepreneurs just don’t know where to start. And I know that’s why you’re asking. And so it’s just kind of chaos from the beginning. So if you start with what I just laid out you map everything out, you project it into the future, and you formulate your plan.

You talk to your tax professional before you do anything, like we said before. And then, once you have your map, once you have your picture, and believe me, pictures speak more than writing the terms down on the piece of paper, showing what that looks like and what it looks like now, what it looks like in the future, and having your roadmap to get there, is the biggest gift you can give yourself.

And then having that in order before you form your company, then you’re golden. So it’s planning, have the planning in place.

Shubha Chakravarthy: Any question I should have asked but didn’t?

Heidi Abdul: No, you really ask a lot of really great questions and they flow so nicely, so I can’t think of a thing.

Shubha Chakravarthy: Excellent. Thank you. It’s been very instructive to me and I’m very sure it’s going to be very educational and instructive to many others as well. So Heidi, thank you so much for taking the time today for this super helpful conversation.

Heidi Abdul: Oh, it’s been such a pleasure. Thank you so much.