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3 key legal tips for securing angel financing
- grellas 17y agoA few observations on the points made in this post: 1. Push for the issuance of convertible notes Counterpoint on this from Chris Dixon ("why seed investors don't like convertible notes"), with some detailed comments by me in the thread on exactly what convertible notes are and the good and bad of such notes from a startup's perspective: http://news.ycombinator.com/item?id=761767 http://news.ycombinator.com/item?id=761767. 2. Preferred stock financings are complicated, time-consuming and expensive. A VC-style preferred stock financing is expensive (between reimbursing the VCs for their legal fees and paying the company's own, can easily exceed $60K or $70K) but startups can and do simplified preferred rounds with angels typically for much less (easy to do a so-called Series AA round, with basic preferences, for $5K or so with friendly angels). 3. If the angel insists on equity, issue shares of common stock This one is problematic for me, since it likely will create tax and valuation problems for your startup (e.g., all subsequent option grants will need to have a strike price of no less than what the angels paid per share of common stock, creating disincentives for future key employees).