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Educational
Certainty in Deal Structuring
Thank goodness people know the “correct ways” to structure early-stage investments. Just in our feed today we’ve enjoyed:You have got to be kidding me with participating preferred. Who else has seen it recently? This makes me really angry.There is a special place in VC hell for VCs who demand board seats at pre-seed. Founders, they do not need this.It’s great how confident (some) people are in an asset class filled with such uncertainty and complexity! Perhaps participating preferred equity is abhorrent; or perhaps this is one deal term among many in the overall structuring of an early stage investment – a voluntary deal made by consenting adults – with advantages and disadvantages in different scenarios? Incidentally, between 5% and 20% of early stage (Seed and Series A) deals have some kind of participating preferred (full or capped) right, according to CooleyGo Trends data (the blue lines in the second chart at that link). Perhaps board seats for pre-seed investments ought to condemn you to eternal damnation; or perhaps they are one deal term among many in the overall structuring of an early stage investment – a voluntary deal made by consenting adults – with advantages and disadvantages in different scenarios? Historically, angels (≈ pre-seed investors) have been criticized for not taking board seats as often as later-stage VCs. But perhaps a balanced board is the best way to help investors get good returns while also helping entrepreneurs be successful? The data in Are Angels Different? certainly suggests so. We get it, some VCs drive monetization from Twitter/X and LinkedIn publicity, and others enjoy signaling their virtue to win deals. But if you’re looking to raise capital, or structuring early stage investments yourself, please look beyond the clickbait and anger and consider the merits, issues, and areas for negotiation when navigating the complex world of early stage investing.
October 30, 2023
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VentureSouth News
VentureSouth Announces Jonathan Heigel As VentureSouth Triangle Director
Durham, N.C. – VentureSouth, one of the country’s largest early stage investment firms, is pleased to announce that Jonathan Heigel, a longstanding member of the group, will now serve as the director for VentureSouth Triangle in Durham. After graduating from Duke University with a B.A. in economics and political science and an M.B.A. from the Fuqua School of Business, Jonathan worked for the US Navy and several consulting companies across the US, before forming his own business consulting and advisory firms. “VentureSouth is thrilled to continue working with Jonathan, now in his role of director of our angel investment group in the Triangle,” said Paul Clark, managing director of VentureSouth. “Jonathan has been a valuable VentureSouth member for several years, as an investor, due diligence team member, and advocate. His service on the board of directors for portfolio companies, most recently for Seal the Seasons in Durham, lets him apply his consulting and entrepreneurial expertise, to early stage companies in the region. We are thrilled to have him leading our efforts in the Triangle.” “I’m very excited to be taking on an active role representing VentureSouth in the Triangle,” said Jonathan. “Having recently relocated to Raleigh, it’s incredibly exciting to see how the region has exploded in so many ways since my college days. The vitality and volume of entrepreneurs, venture investors, and the startup ecosystem matches anything I’ve seen elsewhere in the country, and I’m excited to become a part of it.” With over 500 members, VentureSouth has invested in over 100 companies throughout the Southeast, including over 25 in the Triangle. The organization is excited about continuing to attract new investors into early stage investing, and funding companies in one of the most dynamic entrepreneurial ecosystems in the Southeast.
September 13, 2023
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Educational
Are startups founders automatically “accredited investors”?
We have debated on the Venture In The South podcast whether startup founders are “accredited investors.” My answer, which might surprise you, is “probably.” Here are some ways founders could be. Number three will shock you, as all good clickbait says. First, obviously if a founder meets one of the “regular” accreditation criteria – net worth, annual income, or holding a Series 7, 65, or 82 license, as outlined by the SEC – the founder is accredited like anyone else. Second, for your own company or investment fund, you are accredited. The SEC says that “Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company)” are accredited. So, if you are a director or the CEO (or other executive officer) of the company, you are accredited and therefore can buy shares in your own company. That matters for several reasons. One overlooked reason in South Carolina is that your investment could be eligible for the South Carolina Angel Investor Tax Credit. Invest $10,000 in your own startup? If you did it correctly, you might be able to get $3,500 back in a state income tax credit. Follow the rules here. Few people know this. Similarly, for investments in a private fund, “knowledgeable employees” of the fund (even if you are not part of the GP) are accredited. You are “knowledgeable” if, in connection with your regular duties, you participate in the investment activities of the fund, and have (at your company or a similar prior one) for at least a year. So, for example, our head of diligence, Molly Vinkler, and head of portfolio management Alex Biermann, would be “knowledgeable” because they are actively involved in diligence and deal execution. (They also know a lot, of course, but that’s irrelevant here!) This only applies to your company (or fund) – not to others. And it doesn’t apply to regular employees – only to the most senior members of the management team (or general partner), not to everyone. Not accredited yet? There’s a third possible approach. This may come as a surprise but there is a decent chance a founder that has already raised capital is accredited. How?  Equity in privately-held companies counts towards the net worth definition in the first section above, because equity is an asset (like cash in your bank account or your car). If you raised even a modest equity round, the implied value of your shares could be enough to make you accredited. Take this example. The CEO and CTO of this company created the company at a 75/25 split, and then raised a $1M pre-seed round at a $3M pre-money valuation. Here’s the math: $1M on $3M pre-money valuation sells 25% of the company. That left the CEO with 56.3% and the CTO with 18.8% of the company worth a $4M post-money valuation. The value of the CEO’s stake is therefore $2.25M and the CTO’s stake is now $750K. Ignoring all their other assets and liabilities – and assuming all these shares are vested – the CEO is accredited on this alone. The CTO is not. Obviously your company’s details and cap tables are different. Convertible notes and SAFEs don’t count; unvested shares don’t count; and different classes of shares have different fair market values. (If our CEO held common stock and investors held preferred stock, the CEO might instead rely on an independent appraisal to determine the fair market value of the common stock – something that most companies already do in connection with their incentive stock option plans and is called a 409A valuation. But hopefully you see there’s a chance the CEO is accredited – for all companies, not just the CEO’s own. Here’s another source for this idea. Of course, that doesn’t change that early stage investing is risky, and even if you are accredited it is not a great idea to invest money you can’t afford to lose. All the usual warnings (risky, illiquid, diversification required, etc.) apply. Lastly, if the Equal Opportunities for All Investors Act of 2023 becomes law, anyone – including founders – capable of passing the test would be accredited. Hopefully more to come on that!  
August 31, 2023
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VentureSouth News
Venture Carolina Announces 2023 Class of the Palmetto Venture Fellowship
Venture Carolina Contact: Charlie Banks | 803-414-6702 | charlie@venturecarolina.org Newberry, S.C. – Venture Carolina, a nonprofit dedicated to bridging the funding gap between investors and entrepreneurs has once again partnered with the South Carolina Department of Commerce’s Office of Innovation, VentureSouth, and the South Carolina Jobs-Economic Development Authority (JEDA) to launch the 2023 Palmetto Venture Fellowship, a program designed to create more local accredited investors and expand risk-capital accessibility for early-stage startups in South Carolina. Following its highly successful inaugural launch in 2022, the Palmetto Venture Fellowship, recently kicked off in Greenville with its 2023 class. The 30 fellows will meet three times throughout the year for two days of comprehensive education on the intricacies associated with early stage capital formation. The curriculum consists of topics such as valuations, term sheets, capitalization tables, due diligence, board governance, and exit strategies. “The caliber of the 2023 class proves that South Carolina can assemble a group of business leaders that would rival any state in the country,” said Venture Carolina Executive Director Charlie Banks. “It is even more exciting that these individuals represent a tangible building block for the sustainability of South Carolina’s innovation economy. I was truly blown away at the combined talent and energy during our first gathering.” Thomas Rhodes, President of The Rhodes Companies stated, “South Carolina has great potential to be a destination for entrepreneurs and growth capital. This cohort brings together a diverse group of people, all of whom are committed to our state and region. I am fortunate to be included.” John Brice, Managing Partner of Poseidon Capital Ventures stated, “The program has already exceeded my expectations, even as an experienced venture investor. The community aspect coupled with the expert education provided by the facilitators is a unique opportunity and great add to any prospective venture investors and community builders across South Carolina.” Rozalynn Goodwin, VP of the SC Hospital Association and successful entrepreneur stated, “It’s an honor to participate in this cohort of the Palmetto Venture Fellowship. I am excited about all we are learning and the relationships we are building to move South Carolina’s economy forward through innovation.” The 2023 class of the Palmetto Venture Fellows was selected by a committee of business leaders and investors throughout South Carolina, in addition to nominations from the 2022 class of Palmetto Venture Fellows. The full class listing can be found at www.venturecarolina.org/palmetto-venture-fellowship-class-of-2023. For more information about the Fellowship and its curriculum, visit https://www.venturecarolina.org/palmetto-venture-fellowship. -####- About Venture Carolina Venture Carolina is a South Carolina based non-profit organization that uses comprehensive educational resources to teach entrepreneurs how best to position their companies for early-stage funding, and to guide investors on how to make disciplined angel investment decisions. The result is an environment within the Southeast that successfully bridges the critical funding gap that exists between entrepreneurs and investors. To learn more about Venture Carolina and our partners, please visit www.venturecarolina.org. About S.C. Department of Commerce As South Carolina's leading economic development agency, the Department of Commerce works to recruit new businesses and help existing business grow. S.C. Commerce has recruited world-class companies to South Carolina such as BMW, Boeing, Continental, Giti Tire, LPL Financial Holdings, Mercedes-Benz Vans, Samsung, Toray and Volvo Cars and also supports startups, small and existing business, innovation and rural development initiatives. S.C. Commerce partners with the S.C. Technical College System via readySC to support workforce training and recruiting, and with the S.C. Department of Employment and Workforce, which provides worker training and employment opportunities within the state. With a strong international footprint, the Palmetto State has consistently been among the top in the nation for attracting jobs through foreign direct investment on a per capita basis – recognized by multiple economic development publications for its pro-business climate. For more information, visit www.SCcommerce.com. About VentureSouth VentureSouth, with nearly 500 members, has invested over $73 million in 98 early-stage companies in the Southeast and is consistently recognized by the Angel Capital Association as one of the top 10 angel groups in North America. About JEDA For more than 38 years, JEDA has promoted the business and economic welfare of South Carolina by assisting in the financing of public and private projects throughout the Palmetto State. JEDA serves as a statewide conduit issuer of special obligation revenue bonds and acts on behalf of the borrower to access financial markets and capital. Since its creation in 1983, JEDA has facilitated the issuanc of 620 bonds for over $14.5 billion and resulting in the creation and retention of more than 310,331 jobs.
June 13, 2023
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VentureSouth Portfolio
VentureSouth celebrates 100th company milestone
VentureSouth is proud to announce a major milestone, as the firm and its investors have now invested in 100 early-stage companies. Earlier this month, VentureSouth invested in Darby, a healthcare technology startup, marking the 100th company in the firm’s portfolio. Darby is based in Greenville, SC where VentureSouth got its start 15 years ago with the launch of the Upstate Carolina Angel Network. Since then, the early-stage investment group has deployed nearly $75 million across those 100 companies. Darby is working to simplify at-home care delivery for providers and vendors with a modern and efficient order flow platform, drastically reducing time, friction and errors in the process. The company is led by founder Charlotte Lawson who was previously an Attending Physician and Champion for Innovation at Prisma Health, then went on to Harvard Business School where she recognized the need for Darby’s solution as she continued practicing medicine while pursuing her MBA. “It has been a pleasure working with VentureSouth on our recent capital raise and we are honored to be the 100th company in their portfolio,” said Lawson. “We look forward to working with the group and their investors who will provide both capital and insight as we tackle a big problem in the healthcare space.” VentureSouth Co-Founder and Managing Director Matt Dunbar added, “We are thrilled to announce our investment in Darby, and we’re equally proud that we have now been able to support 100 companies over the years.  It is a privilege to partner with entrepreneurs like Charlotte who are working tirelessly against long odds to solve challenging and meaningful problems in the world.” We are delighted to reach this “first century” milestone, and we’re already hard at work seeking out the next one hundred startups to add to our portfolio. To learn more about VentureSouth - and perhaps invest in some of our next 100 companies -  please visit www.venturesouth.vc.  
March 20, 2023
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VentureSouth News
VentureSouth 2023 Summit recap
While we were grinding through the winter months, our VentureSouth investors and staff enjoyed a delightful early taste of spring last month at our annual VentureSouth Summit. For the first time since we started the event in 2016, we ventured out from Greenville and hosted the event at the Francis Marion hotel in beautiful Charleston SC.   The Summit was a hit! We enjoyed the company of 150 angel investors, 25 portfolio company CEOs, 20 sponsors and supporters, and 12 of the VentureSouth team (and two babies!) for the 2023 Summit.  We were delighted that so many of our investors converged from across our network – from groups as far away as Chattanooga and Richmond. Several individuals traveled over 500 miles, from as far afield as Connecticut, Ohio, and western Florida – so we particularly appreciate their dedication! Many others braved the perils of I-26 to get to Charleston from Asheville, Greenville, and Columbia, and I-77 or I-95 from Charlotte, Greensboro and the Triangle. And over 25 Charlestonians provided local knowledge and southern hospitality to welcome these interlopers to town! We gathered to “do angel investing.” We heard companies solicit investment; we debated diligence reports and the merits and concerns of open rounds of investment; we celebrated the “state of VentureSouth” as the group surpassed $12M of investment in 34 companies in 2022; we quizzed and assisted our portfolio companies, celebrating their progress and trying to mitigate their challenges; and we came to network and socialize across the largest group of angel investors in the region. Organizing something like this is a ton of work (so thanks from me to the whole VentureSouth team on a job very well done). Why do we do it? Primarily because being part of a “virtual community” of nearly 500 angel investors is one thing on paper – but quite another to see in person. We hear from our members every time we run a Summit that you only really appreciate the power of a collective angel group from being together in person. Looking forward to February 2024 for the next one!
March 7, 2023
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VentureSouth News
Jacksonville Venture Competition to Highlight Five Innovative Companies
Greenville, S.C. – VentureSouth, one of the country’s largest early stage investment firms and headline sponsor of the upcoming inaugural Jacksonville Venture Competition, is excited to announce the five innovative companies participating in the pitch competition event.  Scheduled for March 7-8 at the Open Innovation Center, the event will connect startups with potential investors and industry leaders, providing a platform for them to pitch their ideas and secure funding. The competition is expected to draw a large audience of investors, entrepreneurs, and industry professionals. The five participating companies include:  6AM City, based in Greenville, SC, is a digital media company that provides hyper-local news and events coverage in six Southeastern cities.  Iconic Moments, based in Chattanooga, TN, brings together cultural institutions, digital artists, and Web3 technology to bring art into life.  Blue Vigil, based in Jacksonville, FL, specializes in the design and manufacture of tethered drone power systems for industrial and military applications.  Archer First Response, based in Orlando, FL, provides medical transportation services for critically ill and injured patients using advanced technology and medical equipment.  Operade, based in Jacksonville, FL, is a company producing scientifically-advanced preoperative beverages that aim to drive better outcomes for patients and medical providers. "We are thrilled to have such a diverse group of innovative companies participating in the Jacksonville Venture Competition," said Charlie Banks, Managing Director of VentureSouth. "These companies represent some of the best and brightest of the Southeast's startup scene, and we are looking forward to them showcasing their ideas to potential investors and industry leaders within Jacksonville."  The Jacksonville Venture Competition promises to be an exciting event that showcases some of the Southeast's most innovative and promising startups, while also facilitating thought-provoking conversations on establishing an exciting entrepreneurship ecosystem across North Florida. Investors, entrepreneurs, and community leaders interested in attending can register for the event at the Jacksonville Venture Competition’s website: https://www.jvc2023.com.   About VentureSouth VentureSouth, with nearly 500 members, has invested over $73 million in 98 early-stage companies in the Southeast and is consistently recognized by the Angel Capital Association as one of the top 10 angel groups in North America. Contact: Devon Smith | 864-934-6896 | devon@venturesouth.vc 
March 3, 2023
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