A while back I made an angel investment in a very early stage software company. Recently, the CEO reached out to me with good news that they are raising a Series A from a big-time VC (Sequoia-tier)
The company's legal counsel sent me an email requesting signatures for multiple documents, but without actually letting me review the documents before signing - is this standard practice or should I be proceeding carefully?
The lawyer says that the signatures will be "held in escrow" until I have had the chance to review the financing documents, but despite that reassurance, something about this feels off... I don't want to jump to any conclusions, but it seems like there is a risk of some sketchiness around this (e.g. waiving my rights as an investor, etc.)
I trust the CEO and the VC investor is reputable and wouldn't screw over earlier investors, so I suppose I am just not accustomed to signing things without reviewing them first. What are people's thoughts on this? Anything the WSO community (especially those who have done angel investing or worked in VC) could share would be greatly appreciated!
Just saw this.
This is pretty typical. From the company and VC's perspective, they likely have many angels and having a lengthened process to collect signatures and negotiate with each can be a pain in the butt.
If you have a copy of the Series A term sheet, a pro-forma cap-table and the original Series Seed docs you should be able to see if anything changed. Doubt that things will deviate much from the TS and that the rights of the common were altered/negotiated much.
Frankly, it's unlikely that you were affected as an angel minus dilution (unless there were some off-market terms). If it's an ethical CEO + reputable investor your risk is pretty low here.
Attorney here. It's common to obtain signatures before finalizing documents in order to expedite things administratively. The other side's lawyer has already said this, but just be clear when you're sending your signatures that they're to be held in escrow and not be released until you've had a chance to review and provided your approval of the documents you're signing. Have that in writing (email's fine) in case things do go sideways in the future and you want to say you didn't intend to sign a certain version of a document.
Very normal. Plus you're extreme minority equity anyways lol
eehh...it depends...often VC's want angel investors to accept being bought out at current valuation (depending on how much the Angels own) so the VC can take a larger ownership position. While you might have nothing to worry about...you might also get bought out without realizing you are selling.
Thanks for all the comments, guys!
I signed the docs so everything is out of my hands now. After the deal closes, I will officially be a Series A-2 preferred equity holder in this company (the big-time VC et al will have Series A-1 preferred equity, the number sequence seems odds since me and the other angels invested first, so shouldn't we be A-1? Not that it matters).
Anyways, my stake is definitely small... but not insignificant, so if this company ends up becoming a unicorn I stand to do very well. What is more important to me than the potential financial returns is the fact that I was there for the co-founders from the very earliest days when they were just a bunch of college undergrads literally working out of their college dorm room (when they were pre-product / pre-validation)
this is how you become generational wealth!
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