Ask HN: Have you been angel investing?
What kind of deal do you usually propose ? investment vs equity ?
1. Use a SAFE. It’s simple (literally what the S stands for) and defers granting the actual equity until the company is further along and has some kind of major event.
2. Agree on a discount and a cap. These are the two terms an investor and founder will negotiate on.
Discount of 0% to 20% is normal.
The cap isn’t a valuation, but it’s kind of “like” one. In terms of its value, it depends on a bunch of factors:
1. Market opportunity / TAM 2. Strength of the founders 3. The amount of the company the investor wants to own 4. Growth plan of the company. Will this be a lifestyle business or a hyperscale VC startup?
You can also do an uncapped safe.
It’s hard to give a range on cap because it depends on so many factors. I’ve seen deals for a small amount ($1MM) and for gigantic amounts (highest was $50MM, but that was a massive outlier). Most deals I consider are in the $3MM - $10MM range.
As an investor, you obviously want to maximize your share. But you also want to leave enough that the founders feel they have skin in the game. Also, if they’re going to raise additional fund in the future, you want to ensure the founders aren’t diluted too much on later rounds, again so they have skin in the game.
Ownership targets of 1% on the low end to 30% on the high end are “normal”.
Finally, I wrote “normal”, but every deal is unique. If you decide to invest, only go forward with what you feel comfortable with.
Disclaimer: I am not a financial advisor and I am not your financial advisor. This is not legal advice. I’m just a person on the Internet.