Low angel round cap hurt series A?
If you have a relative low cap on a convertible note angel round, will that hurt your chances of getting series A financing?
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If you think the cap is too low and could be a problem then just share that concern with the investor. *"If we cap this at X, then don't you think that's going to be a problem to raise our series A? Surely you wouldn't want to jeopardize your investment by making it harder for the company to raise money later."* If anything, may be you can agree on a steeper conversion discount. Overall, I think raising capital is more about the business than anything else. – Frenchie 11 years ago
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thanks for the comment – Tom 11 years ago
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no prob. BTW, if you say no to unreasonable terms, then you'll be taken seriously. Besides, sometimes bad deals come along and you have to be prepared to handle these accordingly. – Frenchie 11 years ago
2 Answers
I agree; no. However, the price per share in the series A round could end up being lower (and you could thus be forced into selling a higher percentage of your equity), since you'd have to justify your Series A valuation, and investors in that round will see the earlier low valuation, and your negotiating position for the Series A valuation could be harmed.
The short answer is: no (assuming you are dealing with a smart investor).
By the time you are ready for a real A round, you will be valued based on traction (sales, product). The valuation at the time of the angel round is not a factor in your valuation of the A round, for better or worse.
However, what will matter is what percent of the company the angel investors hold. If the angel investors hold more than ~25-30%, the A round investors will be worried that management doesn't hold enough to be properly motivated. If your cap is low at the angel round, you won't be able to raise much money (e.g., if your cap is $300K, you can only raise $100K).
