
Ask HN: Should I give my early angels extra equity? - zangiku
I raised a seed round (500K) in two tiers, on tier late last year, and another this Summer. All the same terms including valuation. Basically, after raising 350K last year, which I thought would be enough to get to profitability, in April I realized I would need to raise the remaining 150K.<p>One of our investors told me that it was a bit disappointing that the early investors would get the same terms as those just joining now.<p>Putting aside the fact that the earlier investors did not raise any complaints at the idea of a second close when we got them in last year, I tend to agree with this investor, and would like to keep my current investors incentivized going forward.<p>I was thinking of issuing them options, perhaps structured so to give them an additional 20% (just mirroring the traditional discount structure in a convertible note).<p>What should I do?
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SeoxyS
(I'm an early-stage angel, fwiw)

Quick counterpoint to the other advice telling you to give more equity out:

1) Your new investors might feel a bit slighted by this; especially if this
additional equity is dilutive, which it probably is.

2) A good angel should understand that raising the additional money is in
their best interest and will maximize the value of their equity if it helps
the company succeed. I'm not sure what situation you're in; but if not being
able to raise the extra capital would be a significant risk; then it's a no-
brainer.

I would recommend against giving out additional equity. The beauty of
convertible debt or safes is that you can take capital whenever you need it
without affecting the cap table and it all gets resolved at your first equity
round.

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myrandomcomment
Nothing. Tell them they can put in the extra 150K themselves if they want to
keep the others out. They should have 1st rights if they did it correctly.

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rohamg
this. do not complicate your cap table early with so little capital raised,
think long-term. raise the 150K from value-add angels, emphasize "making the
pie bigger" to existing investors. Startups and startup investing is unusually
binary in outcome: you should focus on increasing your odds of success rather
than maximizing value in case of success.

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discombobulate
If the new investors only got a _tiny percentage_ , would the angels have
given you some equity back?

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relaunched
The earlier the investor, the more risk they took on. The same terms, if
material progress has been made, doesn't seem like the same risk for the same
reward.

What is right, and what you can get away with, aren't the same thing. You need
more money, a first option to the original investors makes sense, unless the
new investors are strategic. In that case, the current investors should
understand that value and you can use that to justify the same terms (lower
discount for the money, but additional discount for the strategic value).

Any restructuring should be as transparent as possible and you should spend as
much time as necessary explaining your rationale to the parties involved. They
don't have to like it, but they deserve to know what's going on.

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CodeWriter23
A deal is a deal. My concern would be showing weakness, and thereby inviting
all your investors to walk all over you. What happens in the next round? All
your current guys start whining. A deal is a deal. Don't willingly spill your
blood in shark infested waters.

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x0x0
I've seen @joshu occasionally answer questions like this on twitter, so it may
be worth pinging him for an uninterested angel's perspective.

From my pov, it sounds to me like the early angel is basically whining.
Personally, I'd offer to let him or her buy up and preserve a pro-rata. My
decision would depend on if this is an experienced angel with a good rep, or
someone who isn't particularly experienced / not used to how investments go
and the idea that you can lose. ie if you didn't raise that $150k, this
angel's investment would be worth $0 so that's it's own reward.

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Powerofmene
I think increasing their equity, even if only a small amount, is a gesture
that will garner goodwill with your early investors. Cultivating an attitude
of "we are in this together" cannot be a bad move for any startup.

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myrandomcomment
Based on what? The 1st investor should know better. They should say, "we
believe in you, and we want to offer the additional funding." This is not a
game. If OP has something that investors are interested in then they should be
able to raise cash for the good of all shareholders. The OP should go to the
original investor and offer them the first right of refusal. This is a
business. The angel should say, "cool here is the 150K" if they believe in the
company. This is either a new angel that has have never done this before or an
angle that is trying to take advantage of a new founder. The right thing for
the OP to do is to tell the investors they need addtional funding and ask if
they want to particpate.

For what it is worth I have invested in angel rounds, arranged for a startup
to receive angel rounds, done a few startups and have held board seats. Also
to the OP - warrants with a note is something to look at.

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Powerofmene
Nobody is implying dealing with investors is a game. Communication is key. I
guess I assumed the OP did communicate with the original investors. My mistake
with that assumption.

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pbreit
Is the complaining investor new or old? I would think obviously old but your
description makes it seem like it's one of the new ones.

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grizzles
Yep, it's smart and it's the right thing to do.

