Questions

How should I work with my seed investors?

I developed a web application prototype (with 70% functionality) and validated it with some potential customers. I've around 2-3 investors who are willing to invest to take the application to the next level (complete the remaining 30%, go to market, etc). So should I register a C-Corp and issues shares to them OR should I make them part of the company as co-founders? FYI, they will invest money and I've to take care of the execution.

3answers

Definitely a C-Corp in Delaware. You can use the SAFE (Simple Agreement for Future Equity). That's a better version of the convertible note, made by Paul Graham from Y Combinator. You can find it on his personal website.

You should buy the best seller book THE ART OF STARTUP FUNDRAISING by Alejandro Cremades. You can find it on Amazon.


Answered 5 years ago

If they invest money in the early stage of your business, this is a great opportunity to put a "market" value on your business. One of the hardest thing for any startup who only have a protype with no revenue is put a value on your business. For eg. One of the company I raised early funding for, we secured 2 lots of $150k for 10% each. So that equates a market valuation of $1.2m. Your accountant can help you set this up and create a CAP table to keep track of equity dilution.


Answered 5 years ago

If they are truly just investors and not contributing as founders I would suggest structuring it as an investment. This does mean registering as a corporation. Registering your company is not all that difficult to do on your own.

If your concerned about the legal fees associated with properly setting up investors I would suggest checking out a SAFE (simple agreement for future equity). The SAFE is investment tool developed by Y Combinator, you can find more info at https://www.ycombinator.com/documents/#safe

As a disclaimer, it's always a good thing to speak with a Corporate Attorney before making any agreements or taking on investments.


Answered 4 years ago

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