5 ms·

Ask PG/HN: Need advice after receiving seed funding offer.

26 points by throwaway787 16y ago

This is a throwaway account. I have a decent 3 digit HN Karma with my regular HN account. Recently our 1 month startup was covered in a national daily and that really kicked off things for us. We are based in India. We caught attention of a Investor, he called us and wanted to get involved with us. This is pretty new thing for us. The investor is showing keen interest in us as the team and doesn't look like a seasoned startup investor but is a reputed personality in Investment Banking, PE and things like that which we don't understand much. He is yet to make us any offer, but seems very keen on getting involved, get us incorporated, invest, give advice and take us to the next level. The problem I see is he is showing too much interest. We want to get him involved with us, but only as an Angel investor. How to offer him this in a way that we don't screw this up. Thanks in advance.

stefanobernardi 16y ago
I've seen this situation quite a few times. Let me give you some advice. 1) Don't let him incorporate the company for you. You need to incorporate the company yourself and then let him enter as an investor. Not sure about indian regulations though. 2) Have the investment agreements drafted by a lawyer who you choose, do not let him bring his own lawyer. 3) If you want to give him a board seat, pay close attention to his veto rights and negotiate them wisely. 4) DO NOT LET HIM MANAGE the company day to day operations, including bank account etc. Do not give him a signature right. In my opinion after you negotiate the amount and valuation, you should incorporate the company, have an investment agreement drafted and then have him sign it. If you need help with the amount/valuation negotiation, fell free to hit me up via email.
- jacquesm 16y ago
  > do not let him bring his own lawyer. Sure he can bring his own lawyer, but only to represent him, not you. So you pay your lawyer, your lawyer drafts the agreement, if his lawyer wants to take a look then that's fine but don't let him dictate terms. Agreed with the rest though, that's all sensible stuff. And while we're doing sensible stuff anyway, remember to first get the situation between yourself and your co-founders ironed out. Typically that's something that people tend to forget in the heat of the moment and it can lead to huge trouble later on. Make sure all your respective roles, responsibilities and commitments are clear, then bring on board your investor and have a plan for when he decides not to partake after all (because you'll be out a good bit expense wise by then).
  - stefanobernardi 16y ago
    Yes of course, sorry if it was not laid out in this way. What I wanted to say is not to just blindly trust him and his lawyer. Great point about the cofounders.
- bkudria 16y ago
  More importantly, make sure you do not only choose the lawyer, but pay them as well.
- throwaway787 16y ago
  Typical incubators in India gives $10000 for ~10%. Seed funding/Angel investing is very new in Indian context, so couldn't find much resources as reference. How to go ahead with amount/valuation.
  - stefanobernardi 16y ago
    Ok, $100.000 post is not that cheap :) If you go with the simplest method, I'd say you first need to understand how much you would need and how much he is willing to put in the company and then set somewhere between 10 and 30% for him depending on his day-to-day involvement in the company (which needs to be written down in a contract, of course). But there is way more information needed to give you sound advice here, and still with all the info I wouldn't be the best one to ask. Probably someone from India would be better.
deleted 16y ago
[deleted]
jimboyoungblood 16y ago
What you just said. Tell him you want him as an investor, but that you can handle the other stuff just fine yourself. If he has a problem with that, you don't want his money anyway.
brudgers 16y ago
The big question is, does your startup need the money and if so, what for? Since it sounds like you want an angel investment and not VC. my recommendation is to consider forgoing the money if you can, because you already have misgivings and don't need the distraction. The long term goal isn't to take on investors, it's to make money. Strategically, a person without high tech startup experience doesn't bring the expertise and connections which a more specialized investor would. A person with a background in banking is less likely to have long standing relationships to help recruit your next CTO. Good luck.
asanwal 16y ago
There is nothing says you have to take the first money offered to you (even if you can work out the deal, legal, etc). You should talk to other angels/VCs who may have more relevant expertise. Alluding to the fact that you have a legitimate interested investor may also make you more attractive to these other investors and get them to move quicker. Or folks more experienced in angel/VC investing may co-invest with your existing interested party. This may also help ensure that everything is on the up and up.
petervandijck 16y ago
Now that you have someone interested in investing in you, you need to shop around. Try to raise more money from multiple angel investors. It will only make him want you more, and it will strengthen your bargaining position.
- ScottBurson 16y ago
  This is a very important suggestion that deserves much more than the two votes it has received so far. The more potential investors you talk to, the better idea you will get of what kinds of deals are available and which of them is best for you. I strongly recommend doing this before you engage in substantive negotiations with this person.
mbyrne 16y ago
If you are not comfortable talking directly to the person about something so important, why would you ever want to get "married" to him? He wants to run your life, has no experience with his role, and you are afraid that if you express what you want, he will freak out or bolt on you. This is horrible is so many ways. Is he the only game in town? Do you even want angel money at this point? If he can't express or outline his goals and role to you, it is a bad sign.
zwadia 16y ago
Start the relationship authentically: 1) Beyond the capital infusion, is this investor capable of helping you in India or in the US within your specific domain? If not - ask yourself why you think he wants to invest so enthusiastically and reach out to a few other well known angels and see what their reaction is. 2) Be clear and honest about your expectations when it comes to the relationship. State what you expect and is fair. At worst you disagree and figure it out or have a falling out. Even that is a lesson because you WILL disagree on topics down the line, you might as well figure out true colors before you get hitched.

26 points by throwaway787 16y ago

stefanobernardi 16y ago

I've seen this situation quite a few times. Let me give you some advice. 1) Don't let him incorporate the company for you. You need to incorporate the company yourself and then let him enter as an investor. Not sure about indian regulations though. 2) Have the investment agreements drafted by a lawyer who you choose, do not let him bring his own lawyer. 3) If you want to give him a board seat, pay close attention to his veto rights and negotiate them wisely. 4) DO NOT LET HIM MANAGE the company day to day operations, including bank account etc. Do not give him a signature right. In my opinion after you negotiate the amount and valuation, you should incorporate the company, have an investment agreement drafted and then have him sign it. If you need help with the amount/valuation negotiation, fell free to hit me up via email.

jacquesm 16y ago
> do not let him bring his own lawyer. Sure he can bring his own lawyer, but only to represent him, not you. So you pay your lawyer, your lawyer drafts the agreement, if his lawyer wants to take a look then that's fine but don't let him dictate terms. Agreed with the rest though, that's all sensible stuff. And while we're doing sensible stuff anyway, remember to first get the situation between yourself and your co-founders ironed out. Typically that's something that people tend to forget in the heat of the moment and it can lead to huge trouble later on. Make sure all your respective roles, responsibilities and commitments are clear, then bring on board your investor and have a plan for when he decides not to partake after all (because you'll be out a good bit expense wise by then).
- stefanobernardi 16y ago
  Yes of course, sorry if it was not laid out in this way. What I wanted to say is not to just blindly trust him and his lawyer. Great point about the cofounders.
bkudria 16y ago
More importantly, make sure you do not only choose the lawyer, but pay them as well.
throwaway787 16y ago
Typical incubators in India gives $10000 for ~10%. Seed funding/Angel investing is very new in Indian context, so couldn't find much resources as reference. How to go ahead with amount/valuation.
- stefanobernardi 16y ago
  Ok, $100.000 post is not that cheap :) If you go with the simplest method, I'd say you first need to understand how much you would need and how much he is willing to put in the company and then set somewhere between 10 and 30% for him depending on his day-to-day involvement in the company (which needs to be written down in a contract, of course). But there is way more information needed to give you sound advice here, and still with all the info I wouldn't be the best one to ask. Probably someone from India would be better.

deleted 16y ago

[deleted]

jimboyoungblood 16y ago

What you just said. Tell him you want him as an investor, but that you can handle the other stuff just fine yourself. If he has a problem with that, you don't want his money anyway.

brudgers 16y ago

The big question is, does your startup need the money and if so, what for? Since it sounds like you want an angel investment and not VC. my recommendation is to consider forgoing the money if you can, because you already have misgivings and don't need the distraction. The long term goal isn't to take on investors, it's to make money. Strategically, a person without high tech startup experience doesn't bring the expertise and connections which a more specialized investor would. A person with a background in banking is less likely to have long standing relationships to help recruit your next CTO. Good luck.

asanwal 16y ago

There is nothing says you have to take the first money offered to you (even if you can work out the deal, legal, etc). You should talk to other angels/VCs who may have more relevant expertise. Alluding to the fact that you have a legitimate interested investor may also make you more attractive to these other investors and get them to move quicker. Or folks more experienced in angel/VC investing may co-invest with your existing interested party. This may also help ensure that everything is on the up and up.

petervandijck 16y ago

Now that you have someone interested in investing in you, you need to shop around. Try to raise more money from multiple angel investors. It will only make him want you more, and it will strengthen your bargaining position.

ScottBurson 16y ago
This is a very important suggestion that deserves much more than the two votes it has received so far. The more potential investors you talk to, the better idea you will get of what kinds of deals are available and which of them is best for you. I strongly recommend doing this before you engage in substantive negotiations with this person.

mbyrne 16y ago

If you are not comfortable talking directly to the person about something so important, why would you ever want to get "married" to him? He wants to run your life, has no experience with his role, and you are afraid that if you express what you want, he will freak out or bolt on you. This is horrible is so many ways. Is he the only game in town? Do you even want angel money at this point? If he can't express or outline his goals and role to you, it is a bad sign.

zwadia 16y ago

Start the relationship authentically: 1) Beyond the capital infusion, is this investor capable of helping you in India or in the US within your specific domain? If not - ask yourself why you think he wants to invest so enthusiastically and reach out to a few other well known angels and see what their reaction is. 2) Be clear and honest about your expectations when it comes to the relationship. State what you expect and is fair. At worst you disagree and figure it out or have a falling out. Even that is a lesson because you WILL disagree on topics down the line, you might as well figure out true colors before you get hitched.