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Ask HN: What are the trickiest and meanest investor terms?
Investors are well known for setting up investment agreements that are to their advantage and to the disadvantage of company founders.
What are the worst of these tricky terms and how do they work?
- charlesdm 12y agoIf you can spot from a mile away that an investor is looking to screw you, then he probably is. If not now, then possibly down the line. Life is too short, etc.. Every deal is different, but two things that I don't particularly like are: 1/ Multiple liquidation preferences, 1-2-3-5x (i.e. we put in $1M, but we need $2M back before you get any profit) 2/ Participating preferred vs non participating preferred (i.e. we invest $1M for 25% of the company. The exit is $10M. In the one case, the investor gets to take back the money he put in, and he then gets 25% of the gains. In the other case, he just gets 25% of $10M) The combination of both also happens in some cases
- ig1 12y agoIt's a complex topic, far more than an HN topic can cover, I'd recommend Brad Feld's book "Venture Deals" for a deeper look at the topic.
- api 12y agoMark Suster has an interesting contrarian piece on convertible notes: http://www.bothsidesofthetable.com/2014/09/17/bad-notes-on-venture-capital/ http://www.bothsidesofthetable.com/2014/09/17/bad-notes-on-v...