I created the prototype for a mobile app several months ago, and since completing the prototype I've legally established my corporation, built an app landing page website, compiled a business plan complete with financial forecast, and signed on a technical co-founder as my partner.
I happen to be well connected in the technology field, but business and entrepreneurship was a whole new realm for me. Luckily I was able to meet with some impressive investors in the past couple months, but to my dismay they wanted to see a functioning app available on the app store before investing. In other words, one for one, they told me to find a seed investor to get the $100K I needed for the development, and come back and see them when the app launches and I need the $3M Series A investment.
For some reason I have connections to a lot more VCs than I do seed or angel investors, but through a few referrals I was able to connect up with an angel investor who agreed to invest 100K for 10 percent equity in the first meeting. Woohoo! I think...
My only hesitation on this investor is that he's never invested in a tech startup before. Prior to this investment he had only worked in real estate and the oil business. This didn't seem like a problem at first, but the more I've sat down with him to negotiate contracts, the more concerned I've become. He's asking for 10 percent of non-dilutable equity and refuses to even consider dilutable shares. He won't even consider the possibility of dilutable with a non-dilute clause that basically keeps the value of his shares intact.
I guess what I'm trying to figure out is whether or not I should just try and talk this guy out of the non-dilute problem and use him for this, or if maybe it's more beneficial for me to hold out and try to find an investor who's actually invested in tech startups before and who could actually be a beneficial advisor to my company, rather than just a money provider and a pain in my butt.
This is my first start-up and I'd really appreciate any advise and input! I'm also looking for a business consultant that can help me out, so if anyone has referrals I'd definitely appreciate them. Thanks!
Non-dilution is very common - don't let something as simple as that stop you from starting your business. Or, if you have a lot of colleagues in the industry - then why not write up your own PPM and get then to invest. At least they know the industry.
Lastly, just because an investor has not invested in tech before - does not mean that he cannot add additional value. Or, you can take his money and find tech mentors that can help you with the rest. If dilution is your only problem - then you don't have any problems at all.
---Business Money Today - Small Business Loans
Entrepreneurs looking for investors often feel they can't be choosy. If they need money, their reasoning goes, they have no business turning away anyone who has it. Angel investor David Cohen, co-founder of the Boulder, colo., startup accelerator TechStars says this approach is wrong. In the new book Do More Faster, authored with TechStars co founder Brad Feld, Cohen says that the right investor-entrepreneur relationship is important.