A common approach to seed-stage financing is to use a convertible instrument such as a SAFE or Convertible Note. While this is good advice in general, there are exceptions to the rule. One great time to have a priced round at the seed stage is when you have “smart” angels, such as former entrepreneurs or sophisticated investors. The reason is from these investors you can get a very clean, founder/company-friendly term sheet. Why does this matter? Well, the first priced round has a funny way of setting the expectations and baseline of terms of future financings. By locking in company-friendly terms now, you can push later investors to keep equivalent terms. This is a great hack to give you the upper hand in negotiations–in order to be fair to previous investors you need to have a very strong justification for the change. New investors will understand this and it’s hard to argue against. After all, they will be the existing investors in all future financings.
The Agile Startup is an inspiring compilation of the most important lessons of innovation and entrepreneurship. It’s easier than ever to start a new business, and the potential rewards are enormous. But even with all of the available advantages and resources, the likelihood of any one business succeeding is slim. That’s why you need the simple, clear, actionable lessons found in The Agile Startup.
Author Matt Sand
Passionate about making a difference through innovation and entrepreneurship.