Thu, 14 October 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
A key part of angel investing is negotiating terms with the startup.
It’s important to take time to negotiate good terms for the investors in your group.
Key areas to focus your negotiations include the following:
Valuation - this is the most important term as it determines equity ownership and is the primary determinant of returns.
Option pools and who pays for them - the options pool is important to the growth of the company as it incentivizes the team.
The investors could pay for a portion of it as part of the overall negotiation.
Board composition - for most companies raising a Series A, the board consists of two investors: two from the company, and one as an independent.
Vesting founders’ shares - requiring a portion of the founders’ shares to vest over time ensures there will be shares available to pay for a replacement if needed.
Liquidation preference - it can compensate for what the investors consider too high a valuation.
Minimum amount of funding required - it’s important for the team to raise enough to achieve a meaningful milestone before the next raise.
In addition to negotiating good terms, the process should maintain a good relationship with the startup.
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