While VCs and PEs tend to require an LLC to become a C-Corp (most often incorporated under Delaware law) as part of their investment, the process has become easier in many jurisdictions since Brad's earlier post. For example, both Delaware and Colorado allow for statutory entity "conversions" that eliminate the need to set up a new entity and go through a merger. Of course, there are securities law and other issues that should still will need to be considered before undertaking such a conversion.

S-corps can only have corporeal (or corporeal equivalent) shareholders, so the business structure of a VC fund may prevent it from investing in an S-corp.