A potentially scary moment is when you get into your first investor presentations. One of my startups is doing that right now. So before the meetings, I tend to send lots of comments to prepare them. Here are some of them:
1. You will be presenting a term sheet. Most VCs will present their own and I am sure it will be investor friendly. See item 2 below.
2. VCs may tempt you by closing quickly and shoving a term sheet in your face, hoping that the positivity and amount of money will sway you into signing right now to get the money. See item 3 and 4 below. My advice is to never sign anything especially in the emotional euphoria of a positive meeting. I would shop around first and make them compete against each other if possible on terms.
3. Always be ready to say ‘Let me think about it.’ Don’t accept anything too quickly.
4. Don’t let desperation cloud judgment. Ever. And it’s corollary (see item 2 above), don’t let euphoria cloud your judgment either!
5. There may come the option to skip the note if a VC you like wants to close quickly. Be ready to address this as an option, and hopefully a positive result for both you, the VCs, and us angels. By positive I mean that we all invest in and get stakes in the series A. Negative results would mean us angels may get squeezed out.
6. Make the note close between 250K and 400K. Keep the option open to close sooner if you think it’s a good idea, or to extend fund raising to grab the extra 150k for a total of 400k. Don’t just close on 250k if you think you’ve got it. You may be able to get the full 400k if you work a little harder and a little more time. Remember item 3 above.
7. VCs may want part of the note. Especially if you’re giving a discount. They may demand to write into the note the right of first refusal to invest in the series A of some percentage. I would recommend not letting them do the full amount, but say up to some percentage like 50%.
8. VCs may attempt to squeeze us angels out to gain a higher percentage of ownership of the company. Being an angel, I will only ask that you do not let this happen for our sake.
9. VCs may demand a board seat. This is probably ok, but make sure you select the board member VERY CAREFULLY. You should get along with this person, like them, and want to work with them. Getting rid of a board member is not like firing an employee. You will be stuck with this person for a long time. Choose carefully and wisely.
10. VCs will undoubtedly ask for a huge percentage of the company. I would only say that a smart VC should never un-incentivize an entrepreneur by taking huge stakes in the company and dropping the entrepreneurs ownership to near nothing. It’s a dumb move and unnecessary. I would say you could get away with 25-40% depending on the situation.
11. VCs may like the idea so much they want to give you more money. Be also very careful of taking too much money. It will affect valuations, ownership percentages, and also exit strategies. Now venture funds are huge with cash; they want to deploy more whenever possible. Don’t let them tempt you into taking too much!
Other stuff:
1. Be prepared for the due diligence process. It involves getting a huge amount of paperwork delivered to potential investors. Get it all organized and ready to go now, and thankfully you haven’t been in operation very long or else the paperwork could be immense.
It’s always an exciting process to present your ideas and business to potential investors. It is unfortunate that there are so many sharks out there and trying to not get eaten is the name of the game.