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What personal information do you need to reveal to investors during fundraising?

I'm advising a friend who is raising a seed round and she just found out she is expecting. Her current plan is not to tell potential investors. I've advised her that while I don't think she should lead with it, I think if conversations progress and it looks like likely they will invest that should be upfront as otherwise she'll close and end up having to tell them a week after and it will look as though she was hiding something from them. The flip side, which I realize is important, is if it were me and my wife or partner were pregnant I'm not sure it would be relevant. Curious what other people think is important to disclose? Please keep comments amicable - she is struggling with this as well.

52 Replies

Matt Harrigan
6
0
Matt Harrigan Advisor
President & CEO at PacketSled
Probably best to lay out a game plan for company management during maternity leave, and articulate it so that you remove risk for the investors. The investors will need to get comfortable with both her as the CEO, and the person who will be managing the company in her absence. By not disclosing at all, she is very much running the risk of tarnishing relationships with the early investors.
Nick Damiano
3
0
Nick Damiano Advisor
Co-Founder & CEO at Zenflow
Irrelevant if it doesn't impact the company's odds of success. She should convince investors that this is the case. She's going to have to be more connected to work than most people are during their maternity leave though. That's just the nature of being a CEO. When my daughter was born last year, I took one week legitimately off and one week working from home. I would have loved to take more time, but the fact is that being a startup founder requires sacrifices.
Peter Jordan
5
1
Peter Jordan Entrepreneur
Revenue hacker for startups - journey to the $1 of revenue
be honest... otherwise she'll never be able to build trust
Don Hawley
4
1
Don Hawley Entrepreneur • Advisor
President at DLH Consulting
Your friend should deal with this in a straight forward and open manner. She needs to 1) disclose she is pregnant 2) Communicate the impact she expects prior to the delivery of her child 3) How long she expects to take off 4) How the business will operate during her departure 5) Convincingly express she can be a mom and a CEO and how. Don L. Hawley C: [removed to protect privacy] [removed to protect privacy]
Michael Queralt
4
0
Michael Queralt Entrepreneur
President
Have a plan and disclose it - it is a material event and she should disclose it with the plan and the person that will be leading the company while on maternity.
Thomas M. Loarie
0
0
"Bringing Entrepreneurs and Technology to Life" CEO and Chairman, Mentoring and Coaching of C-Level Executives
Your friend needs to be transparent but only needs to reveal this to those who show sincere interest. I agree with Matt Harrigan that she needs to have a plan in place to minimize concerns about continuity and her absence regardless of length. Her primary objective is to mitigate risk as much as possible.
Irwin Stein
4
4
Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
This is an interesting question. The lawyer in me says probably not because pregnancy is not a disclosable event under the law. If your friend doesn't believe that her pregnancy will impact the company then it isn't anyone's business. Obviously, in a few months the pregnancy will start to show. If she is prepared to answer questions with "yes I am starting a new business and a new family" that should end the discussion.
Andy Agrawal
4
0
Andy Agrawal Entrepreneur
Managing Partner, DecisionPoint
I have been working with VC funded companies for almost 15 years Ryan and I agree with you. I think it's fine not to mention that at the front end but do believe that if the investors are interested and commence any level of DD, that she should tell them. Two thoughts come to mind: (1) candor is the preferred basis in my experience on which to start a new business relationship, and (2), the fact that your friend is struggling with this info suggests that she thinks it would be important information and in that case, not being candid about important information is asking for trouble. If the information comes out after funding closes, I think that will be a problem. Andy Agrawal
Peter Weiss
6
1
Peter Weiss Entrepreneur
President at American Outlook, Inc.
Don nailed it.

If I wrote a check expecting a key member of management to be part of the team and devote their efforts to building the business and creating value for the foreseeable future and then found out they knew they were not going be part of the team or significantly constrained in their commitment I would be very unhappy. If I were told there is a plan for a key manager not to be involved past a certain point or to substantially modify their role either temporarily or permanently I would have factored that into my decision and be OK when that change went into effect (but it may have effected my view of valuation, risk or even terms such as wanting the right to redeem some of their shares if the person did not come back to work).

I suspect an attorney would say not disclosing could be a material omission but I would use a different approach. If you were looking to for space would it make a difference to you if the lease was for two months rather than five years and if so would you want to know? If you were carefully interviewing nannies would it bother you to find the perfect nanny who started last week had been planning to move to Europe next month and hadn't told you? Would you want to pay a large initiation fee for a sports club and then learn three weeks later they were shutting the facility for six months for floor to ceiling renovations?

Life happens - people get sick, spouses move, they even get pregnant. The difference between those situations and yours is that you know and it may effect an investor's decision.

By the way: Congratulations!
Al Steele
1
0
Al Steele Entrepreneur
Chief Executive Officer at VIKTRE "The Athlete's Social Network"
Integrity is being as forthright as possible as early as possible. She should explain the situation as normal course and address it as she would any other risk associated with the venture.

Congratulations to her and great success in business and motherhood!
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