Do Startup Companies Have An Absolute Decision Or Control Over Where The Money Of Their Investors Is Spent?

An experienced investor has the entrepreneur complete an operating plan that includes a use-of-proceeds section, detailing what the funds will be used for, before the close.

Also, experienced investors expect to see the tracking to the operating plan take place with a so-called waterfall schema, summarizing how the company performs financially against the plan. Board meetings ought to be used to cover the financial performance of the waterfall, in addition to operational issues and forward-looking statements tracking the performance towards upside (seldom a linear progression).

Investment terms could be set to include restrictions as to what maximum amounts can be disbursed without board approval. But that usually only happens with unknown entities as entrepreneurs and CFO.

Generally, bank account withdrawals or transfers are not restricted, and money could be extracted for nefarious purposes by key account holders. But the repercussions to those actions will be severe once discovered.

Investors also have the option of fulfilling the round with numerous investment tranches, similar to capital calls from venture investors to limited partners, which restricts the ability of entrepreneurs to use large funds for other purposes than intended.

But it must be said that if the suspicion of not letting the entrepreneur have a certain monetary freedom to deal with inevitable non-linear aberrations of a startup, the company should not have been funded in the first place.

 

Let’s lead the world by example with new rigors of excellence we first and successfully apply to ourselves.

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