
All AngelPad Companies Will Get $100K Investment Offers From 2 VC Firms - ssclafani
http://techcrunch.com/2011/08/01/angelpad-investment/
======
rdl
The reason START/Ron Conway didn't do a cap is the risk of adverse selection.

Assume a YC class has 65 companies. If they offer a $5mm cap, there will
probably be 5-10 companies which have either already raised on better terms,
or could easily raise on better terms. Maybe they'll get lucky and half of
those will take it anyway.

If one of the ~4 startups which pass on the note is the next Dropbox,
LinkedIn, or Google, they've just hurt themselves a lot more than they've made
by negotiating a lower cap on all the other deals.

------
mrkurt
It's interesting that they didn't disclose the cap, which is arguably the most
important term in a convertible note. The difference between, say, a $1mm cap
and a $5mm cap is huge.

The Start Fund terms make a lot of sense to me. They're uncapped, but inherit
terms (cap, discount) from later convertible notes. Caps are not entirely
dissimilar from setting a valuation, which is a monstrously hard thing to do
-- trending towards impossible the younger a company is.

~~~
rdl
Yeah, the Start Fund terms are IMO very smart, both for "classes" of startups,
and in general as an early stage startup raising money (if it will soon raise
more) and is too busy to come up with terms.

I'd also consider a fixed discount above Start (e.g. "we inherit terms and get
an extra 5% discount") to be reasonable in some cases. For a class, I think
discounts are less silly than fixed common caps; for individual financings,
caps are more reasonable than discounts, but the cap is a lot more company-
specific than the discount.

------
joshfraser
Could be good. The big questions are a) who are the firms involved and b)
what's the cap?

