Vator Funder FAQ - For Startups


Background


Vator believes in entrepreneurs and entrepreneurship. The founders of Vator have spent their entire careers in the entrepreneurial ecosystem and believe that entrepreneurship and innovation are the building blocks of advancement. Through Vator we want to increase the access entrepreneurs have to capital, and increase the access investors have to startups.


That said, this is a really messy business. Most startups will fail and most investments will end in a complete loss.


The analogy we use to get investors on Vator in the right mindset is that if we think of investing in mature, publicly traded, companies like backing a shipment of cargo on an airplane, with a relatively clear manifest, route, and largely predictable arrival time. Then, investing in a startup should be thought of as backing an explorer about to set sail on an expedition to undiscovered lands, across dangerous seas. All the explorer can tell you is the general direction they plan to head, and the rumors they’ve heard of the gold at the other end. Most of these explorers won’t find any gold, worse, many will die trying.


That said, it’s your job as the entrepreneur to create a plan that has at least some chance of success and to communicate the risks of your plan to potential investors. You should also read the Vator Funder FAQs for investors.


Overall Disclaimer


Vator’s FAQ’s, disclaimers and terms are subject to change. Participation on Vator’s sites and in the Vator Funder process is entirely at Vator’s discretion. Vator can, with or without notice, and at any time revoke a startup’s, investor’s, or member’s right to use the sites and supporting services. No commitments are implied or made.


To participate in Vator Funder you will have to agree to indemnify and hold harmless Vator for any and all investment related activities.


Can any company create a profile on Vator?


Yes. Any entrepreneur can create a company profile on Vator. They can also fill out the Vator Funder section on their company profiles. Not all companies will qualify to have a fund created for their company.


What are Vator Funder’s requirements for creating a fund?


These are subject to change, and may vary on a case by case basis, but here are the current requirements to be eligible to create a fund on Vator:

  • Must have reached its predetermined commitment threshold
  • Must be incorporated in Delaware
  • Must have a notable investor (approved by Vator as such)
  • Must have raised at least $150,000 outside of Vator Funder
  • Must have submitted all information request by Vator Funder
  • Have a Steward

What level of due diligence does Vator perform?


Vator has a due diligence checklist it requires all startups to complete. You can see this checklist here. Vator Funder also requires all companies to meet our eligibility requirements.


What is a Steward and how can a company get one?


For every fund created by Vator Management LLC Vator assigns a Steward. The Steward may, or may not, be an employee of Vator (most often not) and is someone Vator Management LLC feels has sufficient experience in the startup ecosystem to provide oversight of the investment. This is much like how a traditional venture capital firm has venture partners to help Steward specific investments. The Steward will be responsible for helping facilitate the Startup’s access and relationship with the Vator community and for keeping tabs on the investment. The Steward’s economic return for this work is a participation in the the carried interest of the fund.


A company can recommend a Steward for consideration, but all Stewards must be approved by Vator.


What is the commitment threshold?


The commitment threshold is the amount of capital that must be committed by interested investors on a non-binding basis before Vator Management LLC will consider creating an investment fund. The minimum threshold is a percent of the total capital raised, and will typically be between 30% and 50% of the target amount.


What is an indication of interest?


An indication of interest is a non-binding indication that should the startup reach their commitment threshold an investor would like to invest the designated amount. When the startup reaches the commitment threshold, investors who have placed an indication of interest will be invited to formalize their relationship with the fund and make their investment. In order to facilitate a vibrant and reliable community, Vator will keep track of people who do and do not follow through on their indication of interests so that investor reliability can be measured.


What does it cost to raise money on Vator?


At this time, there is no charge to the startup to raise money on Vator.


Do investors in a Vator Funder fund count towards my shareholder total?


Need to check with Royse on if Vator is a pass through entity for shareholder purposes or not.


How many investors can invest in a Vator Funder fund?


For most funds Vator Funder will set a cap of 95 investors, but this may vary on a case-by-case basis.


Are there minimum and maximum investment amounts for Vator Funder funds?


It will vary from each fund, with a specific investment minimum for each fund.


Does Vator lead rounds?


Vator will consider leading rounds in the future. At the moment, Vator will only participate in a round that already has an outside investor also involved.


How does Vator set the valuation and other terms for a round of financing?


At the moment, Vator will not set the valuation and or other terms of the round and will look to follow in rounds with term set by other investors.


Does Vator guarantee it will be able to fund a round or source capital?


No. There are not guarantees that Vator will be source capital nor that a startup which meets the Vator Funder requirements and surrpasses the minimum commitment will have a fund formed.


Is it legal to raise money on sites like Vator Funder?


The securities industry is highly regulated, and the regulations themselves can often be a bit ambiguous. It’s important for startups to have at least a basic understanding of the relevant securities regulations.


It is our and our attorneys opinion that raising funds on Vator is well within the regulatory guidelines set out by the SEC and confirmed in a series of recent No Action Letters issued by the SEC to similar types of services to Vator.


The key elements of what makes it legal to raise money on Vator are that: 1) Vator is not generating revenue on specific transactions, but rather has a fund model similar to traditional venture capital firms; and 2) Vator only communicates investment opportunities to members of the site who have certified that they are accredited investors.


Is Vator a registered broker/dealer?


No. Vator is not a registered as a broker/dealer. The SEC has a number of tests for whether or not the activities of an organization would require them to register as a broker/dealer. In our view, the key test is whether or not the organization is receiving compensation which is contingent on the trade of securities (essentially making the preponderance of their revenue on the transaction without any material stake in the outcome).


Vator is not in the "transaction" business. Our business model is more like a VC fund, in that the preponderance of our compensation is tied to the success of the investment in the form of carried interest, we’re in essentially the same economic boat as the investor. So in our view, and the view of our attorneys, we are not required to register as a broker/dealer. The SEC has issued a series of "No Action Letters" which broadly confirm this operating principle.


Is listing my startup on Vator considered a general solicitation?


No, listing your startup on Vator is not a general solicitation. That said, publishing a public update on Vator (or any other social media site visible to the public) that your startup is raising money IS a general solicitation. So it’s important to be very careful how you communicate your fundraising activities.


There is some discussion in the JOBS Act about easing the rules around General Solicitations (which is essentially the technical term for promoting an investment opportunity to people you don’t know). However, for now it’s Vator Funder’s opinion that these rules are still too new (and too complicated) to be relevant to startups, as such, we think, at this time, startups should not solicit the general public for investors. This is why Vator only makes investment opportunities available to members of the Vator community who are accredited investors.


Can I tell people I’m raising money on Vator Funder?


This is a tricky question. In an effort to protect innocent investors from shysters, the US Government as part of the Securities Act of 1933 established a general solicitation ban that forbade investors from raising money from anyone with whom it does not have a “substantial pre-existing relationship.” By doing so, an investor violates the prohibition against general solicitation.


So, you cannot communicate that your startup is raising money to the general public as that would be considered a general solicitation. However, it is OK to tell your friends privately that you are making an investment. But they have to be people you already know and you should have a good sense that they are accredited investors.


You are also welcome to tell people to sign up to Vator generally (outside of the context of a specific investment opportunity). You just can’t communicate with people you don’t know that your startup is in the process of raising money, as again, that would be considered a general solicitation.


What is the impact of my company making a general solicitation elsewhere?


Given the potential severity of the penalties for a startup making a general solicitation Vator would likely disqualify a company which made a general solicitation from being eligible to create a fund on the site. So, be extremely careful how you communicate your plans to raise funds, don’t mention it in the press, social media or in pitches and presentations which are recorded and distributed online.


Why should I raise money over a platform like Vator Funder rather than work directly with investors?


This is completely up to you. If you would like to receive direct investments, you should speak to the investors to determine if that’s the right course of action. In general, from a startup standpoint, many would prefer to deal with fewer investors so it’s attractive to them to have smaller investors bundled together into larger entities. To the startup, a Vator Funder investment is a single entity with which to coordinate.