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One advantage of this program is that the company receiving the seed doesn't get tainted if Sequoia passes on the A. Companies can easily add a representation
by paulsutter 15y ago
One advantage of this program is that the company receiving the seed doesn't get tainted if Sequoia passes on the A.
Companies can easily add a representation to their seed docs to prevent this or at least force disclosure. The ethical and legal questions are around exactly how the scout/angel presents the investment, how the rights work, how the agreements are written, etc.
- biot 15y agoAs explained in the article: Says Nick Mehta, another one of the first scouts, “They definitely left it open to us but told us to think about the impact on the entrepreneur. We were told we should tell the entrepreneur. But they told us to make sure the entrepreneur thinks about it before they broadcast that Sequoia is an investor because of the signaling effect if Sequoia didn’t invest later on.”
- hnthrowaway84 15y ago"easily add a representation to their seed docs to prevent this or at least force disclosure" Could you please elaborate on this point?
- paulsutter 15y agoA lawyer would write it, but something like "Investor represents that he is investing his own personal money and not on behalf of another party". If the investor turns out to be a scout, he has to negotiate that term out and you get the chance to understand what's happening. Representations are great. Anytime you are negotiating a deal, and the other side makes some crucial claim that persuades you to accept the offer (for example, "all of our other partners agreed to this term!"), just insert that claim as a representation of theirs and watch if they squirm.