Great! You are investing in your friend’s business. You followed The First Two Rules for Angel Investors; The business is a Delaware C corporation. The deal is documented. Here are the next two things. Be sure: (1) your stock and the capital structure of the corporation are correct, and (2) you have appropriate rights of control. This post will focus on the stock structure, the capitalization of the company. The next post will focus on rights of control.
The structure of the company should incorporate your and the founder’s assumptions. Basically, you want to document the deal. This is not easy. It is, however, infinitely easier to do this at the start. Basic rights that seem fair at the start when the risk is high and the future unclear, may not seem fair when the business is mature, or there is an exit on the horizon. At those points, your friend may think giving investors these rights is not “fair”. She may not act in a friendly way. So, structure right at the start. Continue reading →