Structuring an angel investment

by a searcher from University of San Francisco - School of Management

2 years ago

Anyone have advice as far structuring out payment for an a angel investment ?  The startup in question is run by a friend and they are allowing me to come on in payments. Is there anything special I need to consider to make it as attractive possible ie conditions etc? 

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searcher from Rutgers-The State University of New Jersey-Newark/New Brunswick - Rutgers Business School

Most common way to do a Pre-Seed "friends & family round" where the startup has a very early product and little to no revenue is to do a SAFE (with a potential discount and potential post-money cap). This means that whenever the startup gets to a stage to raise a Seed or Series A with a proper VC firm doing due diligence to provide a valuation, your initial investment will convert into shares of the company at that valuation (with a potential discount usually of 10-20% and post-money cap aka maximum valuation). There are SAFE templates out there. Here's a good starting resource: https://learn.angellist.com/deal-terms/safe-note

For the SAFE, the one thing to consider is "does this company have potential to scale?" and "is this the right founder to drive that scale?" I'm assuming the founder is trying to scale this business to multiple millions. You're looking for the valuation of the business to grow to be able to get a return on capital.

If the founder is looking to do more of a "main street business" (e.g. anything retail, local, etc.), then there is no common correct investor structure. You'd be looking to get cash flow or divdends from this investment. And since it's so early, you'd look to determine what is potential business size and how much of the business would you need to own to make the deal worth it.

2 years ago | like reply | 2 likes

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