Your conversation with the angels (even passive ones) does not end at the end. Regardless of the actual conditions of the shareholders` pact, it is worth recognizing that the quality of a founder`s personal relationship with his investors informs the tone of corporate governance. Angel Investing almost always requires a shareholder pact between the founding group and new investors. When considering or developing a proposal, keep in mind these fundamental points: fishing investors often invest through convertible bonds. In doing so, investors lend money to the company, the amount of the loan can be converted into shares of the startup. Most Engel concept sheets contain basic confidentiality obligations (especially when proposed investors have not signed a confidentiality agreement). Sometimes you may find little difference between an angel or a Term Sheet investor seed and a Venture Capital Term Sheet. Both the investment structures required by engeln and the founding alliances are less limited by standardized institutional practices. Accrued yields can take the form of dividends accrued on stocks or an interest rate on convertible bonds. It is rare in Engel`s agreements that such interest would actually be payable in cash. Common shares are residual value shares of the same class issued to the founders of a start-up. Convertible preferred shares are shares that have a liquidation preference over common shares (with Engel transactions, usually the initial price of the investment) and can be converted into common shares of residual value. The main advantage of this structure is that the parties may defer setting an valuation of the business until a future funding cycle.
When the next round is over, the debt turns into shares at the purchase price determined at that time, sometimes with a discount of 10% to 25%, to reward the angel for his early investment. If you choose them wisely, most of the legal details you negotiate will be of little importance. If you stumble, but clearly communicate the reasons for the failure and your measures to tackle it, most angels will remain on you. (They wouldn`t have invested if they hadn`t believed in you). Angel`s investment structures vary, but Engel generally invests in one of three types of securities: despite fundamental confidence, founders should have a very clear understanding of what it takes to change the shareholder contract and share structure in the future. Less typical provisions are exclusive alliances that force the start-up to cease investment discussions with others, but some more organized angel unions contain such provisions in their standard term sheets. (If so, founders should not limit this period to more than 30 to 60 days.) Startup creators should consider the five main provisions of an angel concept sheet: preferred returns represent an amount that the start-up must return to the angel before distributing assets (payments) to other stakeholders. In the case of fisheries agreements, this amount should not normally exceed the initial amount of the investment, and the founders should negotiate each appointment sheet with a different formula. Please consider pre-emption rights granted to investors or any right of approval for future financing cycles.
If you have several angels, you can create a corporate governance regime that will include an independent assessment of the alternatives available and would offer some protection against investor appreciation or opportunism. In general, the founders agree to grant Engeln reporting rights commensurnable to the nature of their investment, provided that the implementation of the commitments does not significantly affect the pursuit of the start-up`s objectives.