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It would have to depend on the investor. Honestly you have a founders bias, which is natural. This could be the case with an angel investor but definitely not a

by camz 16y ago

It would have to depend on the investor. Honestly you have a founders bias, which is natural. This could be the case with an angel investor but definitely not acceptablefor vcs. Honestly, I'd think that angels wouldn't want the deal either. When people invest in a company, they generally want a significant amount of equity in the company. It's a long process to find suitable investments and if they don't make a significant investment then it wouldn't be worth their time. If I was the investor then I wouldn't accept your deal because what's the point if buying such a small percentage since I wouldn't have a board seat or any significant control or say in the company. Having a say is important to me because it allows me to protect my investment as well. Thus, for these reasons I believe that your deal is unrealistic for most general angels and vcs.

EGreg 16y ago
That numbers I posted are just an illustration. I see what you're saying about being on the board, etc. and you're right, I haven't thought that part out ... this may be a deal that's better for "passive" investors, who don't want to really have to deal with control of the company. But ask yourself, though. If you invested $200,000 into a company, wouldn't you want that company to become profitable or raise a larger round before it ran out of money? Wouldn't you be nervous if it spent $180,000 and YOU were its only hope? On the flip side, often founders need only around $20-50k before launching something. If things don't go as planned, they may need as much as $100,000 due to unforeseen circumstances. Unless you can predict the future, a range would work better than a set amount. So I think it makes sense to set aside the maximum amount of that range, but have the option of raising the second round early, before using up the whole range. The reason that the founder has to explicitly draw money on the allotted amount, is to prevent "giving back the money to the investor" when they have found a better deal, which wouldn't be fair. But I think this scheme is fair to both parties. Why exploit the inefficiency of a founder to be unable to predict the future? Make your money on the actual rise in the company's value. Would you agree?

by camz 16y ago

EGreg 16y ago

That numbers I posted are just an illustration. I see what you're saying about being on the board, etc. and you're right, I haven't thought that part out ... this may be a deal that's better for "passive" investors, who don't want to really have to deal with control of the company. But ask yourself, though. If you invested $200,000 into a company, wouldn't you want that company to become profitable or raise a larger round before it ran out of money? Wouldn't you be nervous if it spent $180,000 and YOU were its only hope? On the flip side, often founders need only around $20-50k before launching something. If things don't go as planned, they may need as much as $100,000 due to unforeseen circumstances. Unless you can predict the future, a range would work better than a set amount. So I think it makes sense to set aside the maximum amount of that range, but have the option of raising the second round early, before using up the whole range. The reason that the founder has to explicitly draw money on the allotted amount, is to prevent "giving back the money to the investor" when they have found a better deal, which wouldn't be fair. But I think this scheme is fair to both parties. Why exploit the inefficiency of a founder to be unable to predict the future? Make your money on the actual rise in the company's value. Would you agree?