Why are venture capitalists hesitant to enter into agreements with LLCs?

There are many “technical” reasons why an LLC is not an investible startup company, not in the least since profit distribution at the end of the year extracts funds from a company — an unacceptable stance to investors. Funds that should instead be kept on the balance sheet.

Moreover, an LLC is a company structure generally used for companies with rather moderate growth to keep profits up, not the deep-dive required to build unique proprietary technology for a high-growth company that conquers a new normalization of truth from an initial valley of general disbelief.

The good news is that an LLC can easily be converted into a regular company, so the initial structure of the LLC should not be a deterrent to having investor discussions. Just be aware the company re-incorporation will be made one of the investment conditions.

In fact, the first startup I ran did exactly that to sell six years later for over $100M, while we also converted the company from a services company to a product company. No small feat, but with the right guidance clearly doable.

— — The Venture Company | https://www.venturecompany.com/blog/2017/05/why-are-venture-capitalists-hesitant-to-enter-into-agreements-with-llcs/

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