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SAFE? Con Note? Priced? Which should an angel investor prefer?
- A priced equity round involves agreeing on a valuation with the startup, offering ownership in exchange for investment, and may include rights like board seats.
- Advantages of a priced round include clarity in valuation and ownership, but it comes with higher transaction costs and may take longer to finalize.
- Convertible notes provide flexibility by converting to equity at a later funding round, with the conversion often at a discount and the potential for interest to convert into equity.
- Convertible notes defer valuation discussions to a later stage, offering potential upside if the startup performs well, but they come with risks such as non-conversion or dilution.
- SAFEs offer a streamlined alternative to convertible notes, with simplicity in documentation and deferring valuation discussions, but they lack protection features of convertible notes.
- SAFEs are founder-friendly, with a valuation cap and/or discount rate for early investors, but they do not have maturity dates or automatic triggers for conversion.
- Angel investors can choose between structures based on factors like simplicity, timing of valuation discussions, interest in protection features, and eligibility for tax concessions.
- Angel investors who lack leverage in negotiating terms with startups can opt out of investments, build relationships with larger investors for favorable terms, or join angel syndicates for combined leverage.
- Investors should consider their investment strategy, interests, and risk appetite when deciding between a priced round, convertible notes, or SAFEs as each structure has its own pros and cons.
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