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All AngelPad Companies Will Get $100K Investment Offers From 2 VC Firms
- joshfraser 15y agoCould be good. The big questions are a) who are the firms involved and b) what's the cap?
- rdl 15y agoThe reason START/Ron Conway didn't do a cap is the risk of adverse selection. Assume a YC class has 65 companies. If they offer a $5mm cap, there will probably be 5-10 companies which have either already raised on better terms, or could easily raise on better terms. Maybe they'll get lucky and half of those will take it anyway. If one of the ~4 startups which pass on the note is the next Dropbox, LinkedIn, or Google, they've just hurt themselves a lot more than they've made by negotiating a lower cap on all the other deals.
- mrkurt 15y agoIt's interesting that they didn't disclose the cap, which is arguably the most important term in a convertible note. The difference between, say, a $1mm cap and a $5mm cap is huge. The Start Fund terms make a lot of sense to me. They're uncapped, but inherit terms (cap, discount) from later convertible notes. Caps are not entirely dissimilar from setting a valuation, which is a monstrously hard thing to do -- trending towards impossible the younger a company is.
- rdl 15y agoYeah, the Start Fund terms are IMO very smart, both for "classes" of startups, and in general as an early stage startup raising money (if it will soon raise more) and is too busy to come up with terms. I'd also consider a fixed discount above Start (e.g. "we inherit terms and get an extra 5% discount") to be reasonable in some cases. For a class, I think discounts are less silly than fixed common caps; for individual financings, caps are more reasonable than discounts, but the cap is a lot more company-specific than the discount.