Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

What clauses protecting startup investors are unfair for founders?

I am asking about clauses that you will find on equity offerings as on SAFEs and convertible notes it is pretty straight forward.

7 Replies

Joe O'Neill
0
0
Joe O'Neill Entrepreneur
Financial Advisor at Great Rok Pte, Ltd
I can send you a template of a typical convertible if you wish.
Arthur Lipper
0
0
Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
The whole concept of investors holding equity in a company into which they are only buying in order to sell out is conflicted with the founders. Royalties avoid the conflict always present between the investors in ownership and entrepreneurs wishing to build a lasting business. If the entrepreneur is essentially creating an intended flipper it makes less difference.
Don Ross
1
0
Don Ross Entrepreneur
Managing Partner Digital Health at Life Science Angels
As an early stage investor for more than 15 years, here are a few points to consider:
(1) I strongly prefer negotiating a priced equity round. This is the most fair for both investors and entrepreneur. Negotiating a valuation is the first test whether the entrepreneur and I will be a good match. Investing in a startup is the beginning of a long term relationship. Life is too short to spend time on a poor match, which will be costly personally and financially for both sides.
(2) Will do convertible notes on occasion. The valuation cap should be based on TODAY'S valuation when money is being invested.
(3) SAFE docs are a non-starter. Only appropriate for earliest stages (friends and family round), not professional investors.
(4) Royalty-based returns can work in special cases. Important points: (a) the business must have high margins that can withstand the drain on operating cash flow, and (b) investors should avoid taking investment risk for lender sized returns.
Dane H. Madsen
0
0
Dane H. Madsen Entrepreneur • Advisor
CEO, SVP Business Development | Domestic & International, Product Marketing | Open to new connections
Watch for anti-dilution clauses, Board control for minority investment, preference returns in general, but particularly if there is a multiple return prior to payouts a cap (in order to have a preferred return, make them cap it at 3x or they have to convert), super majority of a Class approval to add another class or shareholder, and Preferreds accruing a dividend just to name a few. You are way better off having a good corporate lawyer experienced in startups work with you on these than trying to catch them yourself.
Aleksey Klempner
0
0
Aleksey Klempner Entrepreneur • Advisor
Entrepreneur, Executive, Angel Investor
Vesting schedule :)
Arthur Lipper
0
0
Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
These are all the normal problems when the unsophisticated entrepreneur attempts to get money from a VC or other shark. Investors in equity are only prompted by the possibility of selling what they bought at a big profit, regardless of the returns for the founders. Using royalties, the investors hold zero equity and are only betting on revenues increasing. Arthur
Irwin Stein
1
0
Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
You should assume that investors are not going to put a document in front of you that does not favor your interests. The first question you need to ask yourself is how bad do you want the money? From there you can negotiate terms. If you have never done it, I strongly suggest that you hire a lawyer who has negotiated with investors before.
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?