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> As an angel you're in early. That usually means that you face dilution. I've always wondered why early investors don't include an anti-dilution clause in the

> As an angel you're in early. That usually means that you face dilution. I've always wondered why early investors don't include an anti-dilution clause in the contract? It could be structured in many ways, but it could be simple as "my share of the company will always be 18% (or whatever), no matter what, until I sell". Then when the company takes on more investment, it'll be up to the new investors and the company's accountants to do whatever share adjustments to keep you at 18%. There must be some really good reason(s) why this isn't done and I hoping someone can explain.

sjbase 9y ago
Makes it much harder to raise future financing, which is bad for everyone. A company who has given away equity with anti-dilution is much less attractive for a new investor. If 30% of the company is allocated on anti-dilution, that means everyone else without anti-dilution is fighting for the remaining 70%. ALL future dilution comes out of their share. It acts like a dilutive multiplier. So any new investor is going to want anti-dilution also. But there's only ever 100 percent. So you end up with new investors trying to force old investors to sell (or tasking the founders/board with doing so). This is not uncommon in reality. BTW, most anti-dilution works by allowing existing investors the option to put in more money with each new round. I.e. they can "top off" their equity to X%, but only by investing more. So as an angel, you might have invested $100k for a few points, but to stay topped off in future rounds, you start having to invest a lot more as the valuation goes up. Not everyone has the desire or liquidity to do that.
snarf21 9y ago
If you are going to take on follow up money someone is going to get diluted. So where is it going to be? Squash the founders until they have no upside? Then why would they stay? When the money is this early, it has to be the existing investors. Some come in on the next round for a smaller number to keep their percentage fixed. From working in a lot of very early stage companies, the two things I have seen is that some of these angels don't understand that the 10K they put in will probably need two more fundings of the same size before things get to an A round. Also, too much funding isn't tied to the right kind of metrics from the start. It is mostly about being cool and disruptive with no plan for the early customer and measuring everything from the beginning to truly know the health of the startup. ymmv
srtjstjsj 9y ago
Why should you get free money from later investors?

sjbase 9y ago

Makes it much harder to raise future financing, which is bad for everyone. A company who has given away equity with anti-dilution is much less attractive for a new investor. If 30% of the company is allocated on anti-dilution, that means everyone else without anti-dilution is fighting for the remaining 70%. ALL future dilution comes out of their share. It acts like a dilutive multiplier. So any new investor is going to want anti-dilution also. But there's only ever 100 percent. So you end up with new investors trying to force old investors to sell (or tasking the founders/board with doing so). This is not uncommon in reality. BTW, most anti-dilution works by allowing existing investors the option to put in more money with each new round. I.e. they can "top off" their equity to X%, but only by investing more. So as an angel, you might have invested $100k for a few points, but to stay topped off in future rounds, you start having to invest a lot more as the valuation goes up. Not everyone has the desire or liquidity to do that.

snarf21 9y ago

If you are going to take on follow up money someone is going to get diluted. So where is it going to be? Squash the founders until they have no upside? Then why would they stay? When the money is this early, it has to be the existing investors. Some come in on the next round for a smaller number to keep their percentage fixed. From working in a lot of very early stage companies, the two things I have seen is that some of these angels don't understand that the 10K they put in will probably need two more fundings of the same size before things get to an A round. Also, too much funding isn't tied to the right kind of metrics from the start. It is mostly about being cool and disruptive with no plan for the early customer and measuring everything from the beginning to truly know the health of the startup. ymmv

srtjstjsj 9y ago

Why should you get free money from later investors?