Fellow Monkey Needs Help in Angel Investment
(Baboon, 164
Points)
on 4/2/12 at 9:18pm
Hello all,
This may sound like a bad idea but please hold judgement...
Myself and three other individuals are going to make an angel investment in a start-up company that doesn't actually exist yet (isn't an official entity like llc or s-corp yet but will be soon). In return we will receive 49% equity in that soon to be legally structured business entity.
We need to write up an LOI so we can stop the entrepreneur from further shopping the deal. Does anyone know where I can get a good sample LOI for an investment like this? Can we execute an LOI before the business is an actual entity? Thanks.
loi? u mean lol. u cant
loi? u mean lol. u cant spell, lol.
Clearly don't make the
Clearly don't make the investment until the company incorporates as an LLC or C-Corp (don't incorporate as an S-Corp.). It takes about 2-3 hours to figure out how to incorporate as an LLC, so there's no excuse not to do it. Because it's just preliminary, use a really simple term sheet to get the ball rolling. Here's a good example if you're going to make a straight-up equity investment:
http://www.angelblog.net/The_One_Page_Term_Sheet.html
However, probably better to structure the investment as convertible debt that converts at a premium (you can negotiation the premium however you please but 50% is fairly standard - may as well go for 100% though). The reason to structure it as convertible is 1) you don't have to set a valuation; 2) it helps protect first round investors get too subordinated if VCs come in for a series A (however it doesn't fully protect you from VCs changing up the cap table). Here's the standard preferred term sheet from the TheFunded:
http://www.docstoc.com/docs/10303638/FFI---Plain-P...
I closed an angel investment last year (as the entrepreneur not investor), so feel free to ping me with any question.
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Clearly don't make the investment until the company incorporates as an LLC or C-Corp (don't incorporate as an S-Corp.). It takes about 2-3 hours to figure out how to incorporate as an LLC, so there's no excuse not to do it. Because it's just preliminary, use a really simple term sheet to get the ball rolling. Here's a good example if you're going to make a straight-up equity investment:
http://www.angelblog.net/The_One_Page_Term_Sheet.html
However, probably better to structure the investment as convertible debt that converts at a premium (you can negotiation the premium however you please but 50% is fairly standard - may as well go for 100% though). The reason to structure it as convertible is 1) you don't have to set a valuation; 2) it helps protect first round investors get too subordinated if VCs come in for a series A (however it doesn't fully protect you from VCs changing up the cap table). Here's the standard preferred term sheet from the TheFunded:
http://www.docstoc.com/docs/10303638/FFI---Plain-P...
I closed an angel investment last year (as the entrepreneur not investor), so feel free to ping me with any question.
SB for you sir, thanks.
Doesn't sound like a scam at
Doesn't sound like a scam at all.
In other news I'm opening a new company that's going to be the next Apple. Invest in me?
lime1945 wrote: Doesn't sound
Doesn't sound like a scam at all.
In other news I'm opening a new company that's going to be the next Apple. Invest in me?
I know it sounds bad but I don't have time to offer NDAs and pitchbooks to all of WSO.
This deal is really more about leveraging the synergies of the business we currently run with this new entity and frankly, we think the entrepreneur is great so we see it as a talent acquisition with extreme upside.
Potentially look into
Potentially look into legalzoom for a basic product that they may be able to provide you with. Tell them the scenario and you'll probably be able to get something for pretty cheap that gets the job done.
yea angel investing is
yea angel investing is typically done AFTER the startup has launched..... Now if you were running an incubator/accelerator then i could understand you investing in them now.... I have read about and followed news on some big-time VC's/ Angel Investors (Mr.navin, sean parker, thiel etc.) and the idea is that you should be looking for really 3-4 main things.....
1) the most important is the management team... U have a deal maker? a core technologist? a visionary that can understand the importance of the product and breaths the operations of the business every second of their existance? REMEMBER its not about experience because in my opinion working at bank or any other corporation DOES not qualify you as a good entrepreneur....... thats great part a kid who is 18 can be better than a person who was an exec. at a F500
2) wha is the market like? If it small then there really is no point in going on to read the rest of their business plan....
3) what was the entrepreneur's purpose in creating the business? People think that working banking hours is horrible and EVEN if they can get offered 300k for an associate THEY still quit after their 2 years....... you think people who care about the money will be willing to work EVEN more hours for NOTHING for the first months or years?
4) Then look at the problem they are solving, is it worth solving? How will change the way we live? etc.
I feel like if you can WITH conviction say yes to all these than (in my opinion) you have a solid investment!!
Wall Street Mentor nailed it on the point to structure the investment as a convertible makes sense.
I want a lady on the street, but a freak in the bed,
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