Fatal Funding Mistakes For Startups

Several weeks ago, I met with an early-stage company whose co-founder said some heavy-hitter investors wanted to invest about $2 million in his venture. I asked who he’d retained as an attorney. The answer made me cringe: "We got a referral from one of our investors."

What’s wrong with this? Well, first off, startups need someone that’s working for them, not the financier. It’s like buying a house. You wouldn’t want to use the attorney suggested by the real estate broker, because you want to make sure the attorney is getting you the best contract possible.

"Founders need to have an adviser on their side," said Lawrence Zulch, the co-founder and CEO of the venture-backed firm, Dantz Development, which he sold to EMC (nyse: EMC – news – people ). "When you’re watching every penny, it can seem expensive, but believe me, it is worth it. And often you can negotiate for lighter fees up front in exchange for the prospect of future business."

Tom Taulli

Full Story: http://www.forbes.com/columnists/2006/01/31/emc-ntag-startups-cx_tt_0201straightup.html