I'm working on a funding deal with a friendly angel. But they're asking for a lot of equity, to be treated almost as a founder. They're a valuable person to help get a big idea off the ground, but the terms being asked for are not commercial. The turning point seems to be this: in the funding process, when should the founders lose majority ownership of the common stock? Seed, Series A, Series B, etc? Any thoughts on what is commercially reasonable?
Unless this person is the only person willing to invest in you, and unless you absolutely need the money to accomplish your goals, I'd walk away.
In terms of real cash money, they should be getting no more than 20% for an investment, and ideally less for a sizable investment. If they are going to be working for the business, that equity should be structured separately and subjected to the same founder vesting as you.
The most damaging thing you can do in the earliest stages is take on money from the wrong investor. It will *at least* cause significant unnecessary headaches later down the road, and could actually cause investors to pass on investing downstream as well.
Happy to talk about your specific situation in more details.
Answered 9 years ago
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