What type of agreement by a startup is typically accepted by angel investors?
I have several interested investors for my startup. I'm a virgin in the business world as far as angel investment goes and don't have any idea the typical agreements reached.
One e-mail I received from a potential investor:
Great to see this product starting to get some attention. I first saw
something about it, 2-3 years ago but was into something else at the
time. If I were interested in participating with 25K, what security
would you provide to me (distributor contracts, inventory...), what
percentage ownership are you providing, and can you provide a first
position (I'm paid back first for the loan before regular
distributions are made)
What am I to tell him? I'd like to give any potential investors a nice return but at the same time have read to not start handing out ownership of the company all over the place.
I'm curious as to how a buy-back clause works, and what would be reasonable to offer investors such as the example above.
Thanks for your input!
- 1 decade agoFavorite Answer
It all depends how do you want to shape up your startup ?
Where do you want to take it in the next 5 years ?
Depends on the kind of investment someone is making ?
For an angel investor his risk for a startup is high...It is like sharing the equity when you are kickstarting a venture...
1. You can have a fair deal equity platform...Majority stakes remain with the investors and self.
2. The investor could be made a equity shareholder and can be on the board of directors with a MOU however if you have the brains to run it you should be the decision maker.
3. Share the profits....You will multiply money if it is a good idea and so would the investor..
4. First time angel investor would need return fast with profits...If he is too fickle minded do not give the long term MOU commitment plan a short tems return plan, give the profit upscale and clip off the deal through the MOU...If the investor is a long term investor no harm in sharing wealth with likeminded assets.At the same time ensure the planning, content and process driven synergy are controlled directly by the founders and not by the investors.
Hope this helps.
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- 1 decade ago
PLEASE DO NOT SELL PARTS OF YOUR COMPANY. when investers ask this they want to buy part and when you want to buy back they will not sell. so make sure that your agreement states words with meaning if you are not sure contact your legal aid.Source(s): work in a headge fund investment firm