11–18 of 18 posts
(Also, everything is negotiable if you get another offer – I would recommend focusing on that.)
Earlier quoted context omitted.
Not particularly raising any red flags from this but there’s still a ton of stuff not mentioned. Some questions the founder should ask themselves: Are they asking for a board seat? Are they going to be able to help out beyond just money? Do they want pro rata for follow on rounds? What’s the liquidation preference? Are there other strategic investors you’d want in on this round?
A noob question: what does "Do they want pro rata for follow on rounds?" mean? Please could you give some examples?
Why does that exist? Primarily so the early investor doesn't get locked out of increasing and or maintaining their participation in a home run outcome. If the early bet turns out to be a great one, it enables them to maximize their potential return. Seed investors will often get diluted quite heavily over time, so that also enables them to offset or eliminate that consequence. They can continue to retain a sizable ownership stake, rather than passively watch as their 10% stake dwindles down to 1%; if they choose to, they could keep the 10% by maxing out their participation rights. Sometimes the structure dictates the pro-rata rights are only for one round, sometimes it applies perpetually. The details can all be negotiated.
Earlier quoted context omitted.
Hmm I’m not sure I can’t see it explained on their website, presumably for employees.
You will be expected to give early hires equity, this is the pool for that and is very normal. It usually comes before the investor such that ESOP allotment does not dilute their shares in the given round. 10% ESOP allotment per round is a good rule of thumb
Seed - 10% ESOP?
Series A - 10% ESOP?
Series B - 10% ESOP?
Total = 30% ESOP?
Earlier quoted context omitted.
You will be expected to give early hires equity, this is the pool for that and is very normal. It usually comes before the investor such that ESOP allotment does not dilute their shares in the given round. 10% ESOP allotment per round is a good rule of thumb
10% per round? Seed - 10% ESOP? Series A - 10% ESOP? Series B - 10% ESOP? Total = 30% ESOP?
At each round, you allocate the same amount but it goes to more people so they each get less.
If you are concerned about dilution then you should probably avoid external investment. If you are successful you will typically end up with less than 20% of the company as founders, split amongst you
$2m for seed seems like a good deal for any amount of equity. At least for software.
Establishing a (standard sized) ESOP is good for the company long term.
If you would like better/different terms, you'll need at least one other firm to offer you a term sheet as leverage.
Earlier quoted context omitted.
You will be expected to give early hires equity, this is the pool for that and is very normal. It usually comes before the investor such that ESOP allotment does not dilute their shares in the given round. 10% ESOP allotment per round is a good rule of thumb
10% per round? Seed - 10% ESOP? Series A - 10% ESOP? Series B - 10% ESOP? Total = 30% ESOP?
Earlier quoted context omitted.
A noob question: what does "Do they want pro rata for follow on rounds?" mean? Please could you give some examples?
Broadly it means that the (in this case) seed investor gets to invest in following rounds at the same price as the other new investors, and the pro-rata means they have the right to maintain their ownership percentage as the rounds go on (if they choose to participate). The exact structure often varies from one deal to the next, you can structure that concept in numerous ways. The gist of it, though, is that the seed…