- She won’t do a deal if the legal documents aren’t good.
- She won’t do a deal if she doesn’t get pro-rata rights.
She then goes on to discuss a thing that happens continually in VC deals. When VCs invest in rounds, they set a threshold for “major investors” and, if you aren’t a major investor, you lose your pro-rata rights. In Joanne’s case, she hates this because her angel strategy is to maintain her pro-rata through the life of the company.
As a VC investor, I always insist on pro-rata rights. I did also when I invested as an angel, although my angel strategy was to invest in only the first two rounds. As an angel, I’d do the seed round, then one more round if needed, and then I’d stop. Occasionally I’d do a later round, especially if my investment was needed for positive signaling, or if it was a down round because of some circumstance, but I still believed in the company.
I know many VC investors who aggressively cut angels out of the pro-rata rights in later rounds. I’ve ended up deals where that’s in the docs, almost always driven by someone else. I’m generally indifferent – I’m delighted to have angels continue to participate if they want, and not if they don’t (my personal syndication agnostic view that I’ve talked about on Feld Thoughts many times.)
As an angel, it’s important to know the lay of the land and how it coud impact you in the future. Joanne does an awesome job of laying to the issue of pro-rata rights in this post – go read it now.
Today’s VC Post of the day is from Chris Sheehan (Common Angels) titled “Putting Together Your Perfect Seed Round.” Chris and his colleagues are active seed investors in New England (primarily Boston and New York) and have great perspective on the dynamics of the composition of a seed round. Chris has also been very supportive of TechStars (thanks Chris) and he’s very familiar with the financings that have happened for many of the teams. He’s got great advice for any entrepreneur raising a seed round.
Rob Go from NextView Ventures has today’s VC Post of the day titled Some Thoughts on Communicating With Your Investors. It contains some great advice for communicating with your seed investors (both VCs and angels), for building both commitment from your early VC seed investors, and creating a cadence that is effective.
Fred Wilson of Union Square Ventures MBA Monday’s post titled Financings Options: Venture Debt is the runner up. Fred continues to knock it out of the park with super useful information in his MBA Monday’s series.
We also owe a special thanks to Mark Suster of GRP Partners for his awesome review of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist which he ran first on TechCrunch and then on his blog titled One Book Every Entrepreneur and VC Should Own. Mark – we humbly thank you for your incredibly kind words.