
Ask HN: What are the trickiest and meanest investor terms? - hoodoof
Investors are well known for setting up investment agreements that are to their advantage and to the disadvantage of company founders.<p>What are the worst of these tricky terms and how do they work?
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charlesdm
If you can spot from a mile away that an investor is looking to screw you,
then he probably is. If not now, then possibly down the line. Life is too
short, etc..

Every deal is different, but two things that I don't particularly like are:

1/ Multiple liquidation preferences, 1-2-3-5x (i.e. we put in $1M, but we need
$2M back before you get any profit)

2/ Participating preferred vs non participating preferred (i.e. we invest $1M
for 25% of the company. The exit is $10M. In the one case, the investor gets
to take back the money he put in, and he then gets 25% of the gains. In the
other case, he just gets 25% of $10M)

The combination of both also happens in some cases

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api
Mark Suster has an interesting contrarian piece on convertible notes:

[http://www.bothsidesofthetable.com/2014/09/17/bad-notes-
on-v...](http://www.bothsidesofthetable.com/2014/09/17/bad-notes-on-venture-
capital/)

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ig1
It's a complex topic, far more than an HN topic can cover, I'd recommend Brad
Feld's book "Venture Deals" for a deeper look at the topic.

