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Embarking on the journey of securing investment is a crucial step for startups. The right investor not only provides financial backing but serves as a strategic partner in the long run. We often emphasize the need for investors to carefully analyze startups before providing funding, conduct proper Know Your Customer (KYC) checks, and perform detailed due diligence. However, it is equally important for startups to analyze investors before making any commitments. We’ve decided to delve deep into this topic and highlight some red flags that every startup should pay attention to before entering into any agreements with investors.

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Carefully select investors

Investors play a critical role beyond just providing funds. They offer insights, guidance, contacts and support that can significantly impact a startup’s development trajectory.

Picking the right investors is like choosing your team members for a challenging adventure. There should be a certain level of trust.

You want partners who not only bring in funds but also share your vision, connect you with valuable contacts, and offer guidance from their own experiences. It’s about building a lasting relationship. This careful selection process ensures that your startup’s journey is not just financially backed but also enriched with support, wisdom, and genuine collaboration.

Red flags in potential investors

• Lack of industry knowledge. Investors should possess a solid understanding of the startup’s industry. Red flags may include a general lack of knowledge or disinterest in the specific field the startup operates in. Zamir Shukho, Founder and GP at Vibranium.VC highlights that
  when choosing an investor, it is essential to look at the team and ideally, the team should have some relevant experience, either from the industry or from the startup’s vertical. This is to ensure that the team understands not only how to invest but also how to support the portfolio company further.
• Unrealistic expectations. Investors with unrealistic expectations can pose a threat. Beware of those setting overly ambitious growth targets, aggressive timelines, or making demands inconsistent with industry norms.
• Lack of commitment. Investors must be committed to the success of the startup. Signs of concern include minimal involvement, failure to meet commitments, or inconsistent communication. Valentina Pidgaina, Head of pipeline and partnerships at Vibranium. VC puts an emphasis on communication, that should be transparent, honest, and pressure-free for both parties.
• Poor reputation. Startups also need to do a KYC check. The reputation of an investor speaks volumes. Be cautious if there’s a history of disputes, negative reviews from other entrepreneurs, or a lack of transparency. Also pay attention to media presence. According to Zamir, it is important to obtain reviews from other founders who have interacted with the fund, understanding how they engage, conduct negotiations, and whether they exert extreme pressure on founders, among other things.
• Focus on short-term gains. Remember, venture is a long-term relationship. Investors solely focused on short-term gains can hinder long-term growth. Watch out for constant pressure for quick returns or a fixation on immediate exit strategies.
• Don’t have stable funds. If a fund has committed funds, it is crucial to verify their financial status. There are cases where a fund exists on paper but lacks the necessary funds, leading to a waste of time in negotiations.

Let’s talk consequences of ignoring red flags

Choosing an investor without thorough checking may lead to financial strain and loss of control for startups, especially first-time founders . Ignoring red flags can result in misaligned values, reputation damage (this is what you don’t want to face, especially if you are raising), limited growth opportunities, legal issues, and difficulty attracting future investments.

Additionally, it may stifle innovation and hinder the company’s ability to navigate tough times effectively. Proper research and consideration are crucial to avoid these consequences and ensure a successful, sustainable partnership.

As many of you already know, we launched our second Softlanding program for startups willing to relocate to the US. We discuss tips and insights: from navigating your visa application process and absorbing cultural differences to extracting valuable contacts from networking events and becoming a part of the innovation ecosystem in the country.

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Wecontinue to keep a close eye on Softlanding’s first batch alumni and are always happy to share success stories. One of these stories is about Greg Uspensky, founder of ASAP, a startup which helps supercharge client LTV for consumer businesses, and his experience obtaining an O-1 visa after finishing our first Softlanding program.

O-1 visa 101

O-1 visa gives you the possibility to live and work in the US. In my case, it also allowed my wife to come to the US as well (the most important part!).

In order to get the visa, you’ll have to prove that you possess extraordinary talent in your field by meeting at least 3 of the 8 criteria

We never considered doing it ourselves. I guess that’s something only professionals should handle, as it’s a major milestone for your future life and work.

Where to start

We were deciding between the O-1 (talent) and E-2 (investor) visas. Two law firms that I reached out to didn’t express much enthusiasm about my O-1 case because they couldn’t find enough evidence to support even three criteria. We decided to pursue the E-2 visa, but soon discovered that the waiting time was unpredictable.

During the Vibranium Softlanding program, we had the opportunity to meet a guest speaker from the Legalpad team. Legalpad specializes in work visas for startups, and we wanted to hear their opinion on our case. To our surprise, they found our case to be substantial, meeting at least three criteria. After a more thorough review, that number increased to 5(!) criteria.

Preparation process

It didn’t seem obvious to me at first, but to prepare for the O-1 visa application, you should:

• Reflect on your work: think about what you did in the past and what you do now and how can it be used as one of 8 criteria. I gathered all the publications, contracts and other achievements for the past 10 years!
• Reimagine your work: consider how you can make what you do truly exceptional. For example, think of Mario, who isn’t just a plumber but a hero saving Princess Peach from Bowser — that’s extraordinary!
• Gather evidence: dive deep into the results of your activities. Collect every piece of evidence that can support your case. This includes articles about you, contracts you’ve signed, events you’ve participated in, investments you’ve received, and even the number of downloads for your app. Don’t forget salary statements and memberships in accelerators; every detail can work in your favor if presented correctly.

If you’re a company founder aiming for an O-1 visa, there are a few obstacles to consider, which no one told us about initially. It took some time to get on the right track:

• Physical office requirement: your company must have a physical office, not just a virtual one. We opted for a coworking space ($300/month).
• Legal right to do business: ensure your company has the legal right to operate in your state. This is a straightforward procedure that your lawyer can handle (3–5 days, $200).
• Reference letter: you’ll need a reference letter from someone in the US who knows you as a professional in your field. Your lawyer will draft the letter, and the person will sign it. Some law firms may suggest more than one letter, but it may depend on the firm. We prepared a strong single letter.
• Translation: if your evidence (such as articles or contracts) is in a language other than English, you’ll need to find a translation agency to translate it into English and authenticate the translation. You can either choose an expensive agency for this task or translate the documents yourself and then hire someone with a translator diploma to sign them.
• Board authority: most importantly, your company’s board must have the authority to terminate your employment (yes, really). To address this, we expanded the number of board directors to three, including myself, and updated the incorporation documents to empower the other two board members with the right to dismiss the CEO.

Key steps

The process for us was as follows:

• Prepare the proof that fits the criteria.
• Modify the incorporation documents so that the company will have the right to terminate you as a CEO.
• Obtain approval to conduct business in the state.
• Find a person for the reference letter.
• Translate the proof if it’s not in English.

We signed the agreement with the lawyers in February 2023 and received our case approval in August 2023. It took us a total of 6 months.

Let me conclude by saying that the O-1 visa might seem challenging and unattainable, and there may be people who will misguide you or tell you that you’re not qualified.

Seek out lawyers who specialize in your specific case, ask for referrals, join visa forums, ask questions, gather evidence — by doing so, you will not only build your case but also discover evidence of the great accomplishments in your life that you might have forgotten.

P.S. Remember one more thing: this is your visa, and even if you’ve hired a professional lawyer or firm, you are ultimately responsible for this significant undertaking. Be very attentive and double-check everything.