Ask HN: Thoughts on a hedge fund investing in my seed stage startup | Hacker News Reader

Ask HN: Thoughts on a hedge fund investing in my seed stage startup

3 pointssr_banksy6 comments

Without giving too much away, my co-founder is all for the idea. However I am generally wary of hedge funds. We are in the seed stage where a few angels have committed. Just not sure what the experience of having hedge funds as shareholders is like. Any thoughts/ experiences you could share would be greatly appreciated.

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The term "hedge fund" covers a tremendous range of firms. That said I would look out for the same things you'd look out for in any funding arrangement: price, control, dilution, liquidation preference, unusual rights, etc. If you're just looking for money, it all spends the same as long as it doesn't come with onerous terms. However, you won't get any of the putative benefits of working with a "real" VC: access, guidance, services, follow-on funding, etc. You definitely do not want to end up with a cap table comprised of one line item for founders and one line item for the "hedge fund"'s investment on some weird-ass terms; that will make it nigh-on impossible to secure follow-on funding. I would feel best about taking this kind of money if I had a "real" VC as the lead investor and the hedge fund folks were minority, pari passu, and personally known to me. Also, DO NOT sign any document without legal support. Make the legal relationship, spend the money, understand what you're being asked to agree to, and PUSH BACK if you don't like the terms being offered. A broken structure is not the foundation you want.

Sound advice! Thanks.

My concerns would be:

1. How do their interests align with yours in terms of liquidation timelines?

2. What sort of relevant expertise does the relationship make available?

3. How do the industry norms of the hedge fund industry differ from those of technology focused venture capital?

4. Are your Angels favorable toward the idea?

These are all aspects of the more general question, will a hedgefund make a good shareholder for the type of company you are trying to build.

Good luck.

Thanks! I think 1 and 3 are the ones I'm researching and finding answers for. As those I think will eventually lead to a yes or no!

There's no reason to mistrust a hedge fund - they are not as evil as they're portrayed in the press. I would question why a hedge fund is investing in a seed stage startup as that generally does not fall under their mandate. (Time frame mismatch.) But from your perspective who cares, just take the money.

I think that's the question I need answering as well. Time frame mismatch. I don't get why they would.

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