Investors getting return on Capital prior to exit?

1 point·startupken··7 comments

Hi all,

I am negotiating with some investors who are expecting to invest $1M. They want a return of their capital contribution of $1M through distributions within 3 years and they also want the negotiated equity. Upon reflection this seems extremely non-standard to me. Would love someone else’s thoughts.

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I've seen similar before. It's legal. They are welcome to propose anything that's legal. You're welcome to not accept their terms.

It really comes down to how much leverage you have. Do you have other investors?

If their equity percentage is low, then you could almost think of it as a loan with interest paid in equity. If it's high, you might think their terms are not reasonable.

Good luck!

As others have said, this deal is not standard.If you have other options go for them. If you want to stay at the table here is a counter for 1M investment negotiated equity 3 yr term every time they get a distribution, their equity goes down by a similar % such that at the end of three years they dont have any equity.

or just negotiate a better deal.

While there’s absolutely nothing wrong with that offer, for startups, it’s as non-standard as you think. They’re looking for a different type of investment than your company would provide.

For other readers who have revenue and want a hybrid of debt and equity, look at Indie.vc and Lighter Capital.

It sounds like they have confused themselves into thinking that they are providing you a loan.

Tell them you're not looking for a payday loan, then stop talking to them and look for real investors.

Sure, as if it was that simple. He probably has no other alternatives, which is why he wound up with these terms.

No deal at all is always better than a terrible one. We walked away today.

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