News - Startup Financing

"Q: I have been planning to set up a new tech company and will try to get venture capital financing. Should I set up my new company as a corporation, or can I start it as a sole proprietorship and then later incorporate? What resources can you point me to to become better educated about obtaining venture capital?

A: You'll eventually need to structure your business as a corporation if you want venture capital investment. And you should definitely incorporate before you hire any employees, solicit investors, or enter into any partnership arrangements with other companies.

But it's fine to start out as a sole proprietorship, especially if you're not yet sure whether your idea will fly.

"If this is just a guy writing code in his bedroom, he should start as a sole proprietor and then switch," said Nathan Beckord of VentureArchetypes, a San Francisco firm that advises startups."

You mention looking for venture capital. Many novice entrepreneurs think that VCs are the first stop for funding. In fact, there are other sources of capital you need to tap into first -- your own money, then funding from family and friends, then possibly individual "angel" investors."

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