

Ask PG/HN: Need advice after receiving seed funding offer. - throwaway787

This is a throwaway account. I have a decent 3 digit HN Karma with my regular HN account.<p>Recently our 1 month startup was covered in a national daily and that really kicked off things for us. We are based in India.<p>We caught attention of a Investor, he called us and wanted to get involved with us. This is pretty new thing for us. The investor is showing keen interest in us as the team and doesn't look like a seasoned startup investor but is a reputed personality in Investment Banking, PE and things like that which we don't understand much.<p>He is yet to make us any offer, but seems very keen on getting involved, get us incorporated, invest, give advice and take us to the next level. The problem I see is he is showing too much interest. We want to get him involved with us, but only as an Angel investor. How to offer him this in a way that we don't screw this up.<p>Thanks in advance.
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stefanobernardi
I've seen this situation quite a few times. Let me give you some advice.

1) Don't let him incorporate the company for you. You need to incorporate the
company yourself and then let him enter as an investor. Not sure about indian
regulations though. 2) Have the investment agreements drafted by a lawyer who
you choose, do not let him bring his own lawyer. 3) If you want to give him a
board seat, pay close attention to his veto rights and negotiate them wisely.
4) DO NOT LET HIM MANAGE the company day to day operations, including bank
account etc. Do not give him a signature right.

In my opinion after you negotiate the amount and valuation, you should
incorporate the company, have an investment agreement drafted and then have
him sign it. If you need help with the amount/valuation negotiation, fell free
to hit me up via email.

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jacquesm
> do not let him bring his own lawyer.

Sure he can bring his own lawyer, but only to represent him, not you. So you
pay your lawyer, your lawyer drafts the agreement, if his lawyer wants to take
a look then that's fine but don't let him dictate terms.

Agreed with the rest though, that's all sensible stuff.

And while we're doing sensible stuff anyway, remember to first get the
situation between yourself and your co-founders ironed out. Typically that's
something that people tend to forget in the heat of the moment and it can lead
to huge trouble later on.

Make sure all your respective roles, responsibilities and commitments are
clear, _then_ bring on board your investor and have a plan for when he decides
not to partake after all (because you'll be out a good bit expense wise by
then).

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stefanobernardi
Yes of course, sorry if it was not laid out in this way. What I wanted to say
is not to just blindly trust him and his lawyer.

Great point about the cofounders.

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petervandijck
Now that you have someone interested in investing in you, you need to shop
around.

Try to raise more money from multiple angel investors. It will only make him
want you more, and it will strengthen your bargaining position.

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ScottBurson
This is a very important suggestion that deserves much more than the two votes
it has received so far. The more potential investors you talk to, the better
idea you will get of what kinds of deals are available and which of them is
best for you. I strongly recommend doing this before you engage in substantive
negotiations with this person.

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jimboyoungblood
What you just said. Tell him you want him as an investor, but that you can
handle the other stuff just fine yourself. If he has a problem with that, you
don't want his money anyway.

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brudgers
The big question is, does your startup need the money and if so, what for?
Since it sounds like you want an angel investment and not VC. my
recommendation is to consider forgoing the money if you can, because you
already have misgivings and don't need the distraction.

The long term goal isn't to take on investors, it's to make money.
Strategically, a person without high tech startup experience doesn't bring the
expertise and connections which a more specialized investor would. A person
with a background in banking is less likely to have long standing
relationships to help recruit your next CTO.

Good luck.

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asanwal
There is nothing says you have to take the first money offered to you (even if
you can work out the deal, legal, etc). You should talk to other angels/VCs
who may have more relevant expertise.

Alluding to the fact that you have a legitimate interested investor may also
make you more attractive to these other investors and get them to move
quicker. Or folks more experienced in angel/VC investing may co-invest with
your existing interested party. This may also help ensure that everything is
on the up and up.

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mbyrne
If you are not comfortable talking directly to the person about something so
important, why would you ever want to get "married" to him? He wants to run
your life, has no experience with his role, and you are afraid that if you
express what you want, he will freak out or bolt on you. This is horrible is
so many ways.

Is he the only game in town? Do you even want angel money at this point? If he
can't express or outline his goals and role to you, it is a bad sign.

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zwadia
Start the relationship authentically:

1) Beyond the capital infusion, is this investor capable of helping you in
India or in the US within your specific domain? If not - ask yourself why you
think he wants to invest so enthusiastically and reach out to a few other well
known angels and see what their reaction is.

2) Be clear and honest about your expectations when it comes to the
relationship. State what you expect and is fair. At worst you disagree and
figure it out or have a falling out. Even that is a lesson because you WILL
disagree on topics down the line, you might as well figure out true colors
before you get hitched.

