It’s a universal truth that we achieve much more working with each other, than against each other. What’s more, very few of us achieve as much on our own, as we do together.
This is certainly true in early stage investment. In this endeavour, no one ever achieves success on his or her own. No one!
That’s why I struggle – to the point of getting pretty vexed – with the whole “founder friendly vs. investor friendly” thing. I can’t see how it helps either side to the deal; especially founders.
Pitting ourselves against each other is not a great way start to a relationship.
As angel investors we are backing founders because we think you and your business are unbelievably awesome. We want to be part of the inspirational story you are telling. We believe we can add value. We want to help.
We know investors become members of our networks for the following reasons:
- To lift New Zealand higher – economically and socially;
- To be actually involved in doing this – by contributing money, expertise and connections;
- For the cool company – to be involved with like-minded, optimistic, creative people; and
- For the rich rewards – of course we hope for a financial return but the “psychic return” of doing good and contributing to lifting NZ higher is a key reason why people become angels.
When angel investors are negotiating the terms of a deal they are not looking to ankle-tap the founder or give themselves an unduly, unfair advantage over the founder. Negotiating a term sheet is about aligning the founder and investor to give the business the best chance of success.
Ideally negotiating a term sheet is front footing discussions around economic and control rights to establish three key things:
- What expectations do we have about the venture’s future?
- What expectations do we have about each other’s involvement? This should be based on an honest appreciation of each others strengths and weaknesses and how the terms of the deal and our involvement with each other address these; and
- What happens when things go wrong?
Both investors and founders must fully understand the implications of all the terms of any deal. They need to be realistic about the needs of the business at that particular point in time, with an eye to positioning the business to be in the best position for securing more investment in the future. High growth businesses invariably need more capital.
There is no such thing as a stupid question in early stage investment. So whether you are an investor or a founder be sure you understand the implications of all the terms, understand the impact they will have on future funding rounds, understand the implications they have when things go wrong and when things go well.
To be success focused we need to be founder friendly AND investor friendly. It’s all about alignment.