I was speaking to the co-founder of a very promising start-up recently. Her company has been getting “buzz” and good press and it’s adding customers daily. I’m sure to the envy of many entrepreneurs, it has been well-funded by a couple of rather high-profile angel investors. She even had fabulous yellow stiletto heels. (Really, they were awesome!)
Why, you may ask, would she not be over the moon?
Well, Yellow Shoes confessed somewhat guiltily, “I wish we hadn’t taken money so soon!”
As it turned out, unlike many founders, Yellow Shoes and her partner had not actually pitched their start-up to investors for funding. Through social circles, a very early-stage version of their enterprise had come to the attention of an investor who expressed strong interest in their idea and ultimately funded them sans pitch, pitch deck, or even an executive summary.
For many founders sweating over every line and graphic in their deck, this would seem to be a dream come true. So what could possibly be the problem?
Well, in taking early money, Yellow Shoes and her partner had lost control of their company. Literally. Between the two angels who had funded the company, their angels took over fifty percent of the company and ran it, no bones about it.
“I just think if we’d held out another three months, we wouldn’t have had to give away quite so much…”
She’s right. One of the most common questions I am asked by founders is: How much of my company am I going to have to give up?
Well, duh! How much of My Company AM I Going to Have To Give Up?
Realistically, it’s going to be a lot. You may want to sit down for this part…
You probably should brace yourself to know that many angel investors are going to ask for at least 10% of your company with term sheets asking for between 20% and 40% being bit unusual.
But there’s a lot of room between 10% and over 50%. There ARE things that you can do to increase your leverage in negotiating with an angel or other outside investor.
Want To Learn What YOU Can Do To Increase Your Leverage When Negotiating with Investors?
Read on to Part 2 of the Tale of Yellow Shoes: Increasing Your Leverage