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Entrepreneurs who are in the process of raising seed capital are probably dealing with few important questions like: How to convince investors? What should I offer them?
In most cases, only other entrepreneurs that went through the same experience can help. This is why Gianluca Valentini, who successfully raised funds in The Netherlands several times, wants to share his advice on this topic.
What to offer to investors?
The answer may seem quite simple: pure, simple equity. Although many shareholder agreements include several additional special rights, Gianluca Valentini highlights two main reasons why, in general, offering equity is the best choice.
1| Incentives
They can create troubles in the future
Let’s take the example of liquidation preferences. Since they allow those who have them to get the investment back before the returning is split among the shareholders, this may lead investors to push you to an early exit, before you exploited your full potential.
They create precedents
Following investors will ask for the same rights, if not more. The function of angel investors, nowadays, goes way beyond simple investors: they are like business partners, that help you in the ups and downs of your company. They therefore should have the same rights of the founding team.
2| Negotiation skill
To succeed as an entrepreneurs, you should have very good negotiation skills. Raising funds is a good testing field to prove your ability as a negotiator.
This doesn’t mean that shareholder agreements should’t include some common rights as tag-along, pro-rata rights, etc. – you should be open to that, even before you reach out to investors. However, watch out for special rights as liquidation preferences, full- ratchet, etc.
Angel investors, being business partners, should have the same rights of the founding team.
Did you find this video useful? What was your experience? Feel free to share in the comments your feedback, experience or suggestions for our next video!