My startup is about to raise $5,000 each from private parties. What are some options for moving forward? This offer is targeting a fixed number of private parties interested in my startup. They have agreed to receive either employment (due to the business model) or accept interest for their money. Other conditions exist for employment. I am looking for a platform or advice on how to proceed.
I'm definitely not an attorney, but have worked with several (many dozens) startups who have gone through the seed, angel and venture funding processes. The first step to consider is whether you are financing your investment as debt or equity. If you're talking about interest, you could be referencing interest paid on a debt note, or you could be referencing interest (shares) in some form of an LLC corporation. Which, brings me to my next point, the format and style of investment you take on can also be influenced by which type of legal entity you are incorporated under.
Each classification, from S Corps to C Corps to LLCs and LLPs, have different implications surrounding how you take on outside investment.
Also, I'm not sure if your model is unique in someway, but offering employment in exchange for investment seems somewhat unwise and possibly sticky to complete (if even possible.) I would definitely speak to a Labor attorney about that since if it were even possible to do may it could make the contract writing side challenging (terms of employment/firing etc.)
For what it is worth, most people consider a convertible or Safe (simple agreement for future equity) note at the funding levels you are describing. It makes the process very smooth and there is a ton of freely available documentation/templates online you can use to complete these with little or no legal involvement.
Happy to discuss any other formation or investment positioning items, feel free to reach out if you have other questions. best of luck with your round!
Answered 5 years ago