Skip to content
Screenshot 2024 03 18 at 10 06 55 AM

News & Insights

Upstate hero
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
Venture south fallback
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
Venture south fallback
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.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
Venture south fallback
VentureSouth News
Venture Carolina Announces 2023 Class of the Palmetto Venture Fellowship
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 on Venture Carolina's website.
June 13, 2023