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Shares generally don't vaporize once issued, although you'll certainly experience dilution as new shares are issued unless you keep putting money in to preserve
by gyardley 15y ago
Shares generally don't vaporize once issued, although you'll certainly experience dilution as new shares are issued unless you keep putting money in to preserve your stake. You'll also always be behind the new money in the preferences stack - newer investors get paid back first.
You shouldn't be angel investing, though - not if you'd actually consider suing founders because they might change the direction of their company to one you disagree with, or because they might decide to wind down the company should they fail and be unable to raise more capital. Both of those things are pretty normal, and the way angel investors deal with them isn't to come up with non-standard contractual terms, it's to have a portfolio of many angel investments, so their risk is distributed. If you're only going to be investing in one, you've just got to accept that you've got a very high chance of losing 100% of your investment. Founder malfeasance is the least of your worries - you'll lose it because most companies fail despite their founders' best efforts.
All you're going to do here is end up introducing non-standard terms into your investment paperwork which are going to scare away future investors and make the company you're investing in less likely to succeed.
- brador 15y agoApologies for the misunderstanding, I meant I would not hesitate to sue if an appropriate situation arised. Suing because of a pivot is not something I would consider. That last sentence is an eye opener and I will now avoid non-standard terms. Is there a list/source of some expected standard terms for startup investment? Lastly, do you know of any good sources (other than the PG article mentioned by Patio1 above) on the subject of angel investing? Any good books/sites?
- swalkergibson 15y agoHere is a blog post from Fred Wilson with a passel of standardized funding docs. http://www.avc.com/a_vc/2010/03/standardized-venture-funding-docs.html http://www.avc.com/a_vc/2010/03/standardized-venture-funding...
- gyardley 15y agoHmmm. I'd just go through all the links here, since Gabe did a great job curating the best stuff online: http://www.gabrielweinberg.com/blog/2010/06/how-to-learn-about-angelvc-term-sheets.html http://www.gabrielweinberg.com/blog/2010/06/how-to-learn-abo... I should probably step back from what I said earlier and stress that there's not one canonical set of 'standard terms' - there's just terms that are typical and terms that are rarely or never seen. Unless there's a compelling reason, I'd keep things typical. I'd also Google and read up on convertible debt, which might be a good option. There are pros and cons to convertible debt, but the associated legal costs of doing convertible debt are generally lower, so a big chunk of the money you're investing won't immediately get eaten up by lawyers. You can't avoid legal bills - whatever route you take, the company will need a lawyer with relevant experience. But you can minimize the cost.