How to run a party angel round without a lead investor?

I have been able to get significant interest from a good number of well suited angels for my business, after many months of looking for folks who grok my industry.

But now, it's the middle of the summer and folks are beginning to go on vacation and I want to just get this done. We are not desperate for the cash but if we can get the round closed soon, we can act in time to scale up for a big opportunity. The guy we have asked to consider being our lead investor is just not moving very fast because he has something big going on with a couple of his other companies.

David Cohen said I can just pull all these folks together in a room and negotiate terms-- he called it a party round. Since most of these investors have seen our full business plan and our financial model and are all pretty psyched about the business, we need to get down to negotiating the terms and percentage of company for the $$ we are raising.

What are the pros and cons of a party round versus waiting for a lead investor? Am I better off just asking one of the other folks to be the lead? Does the party scenario set my team setting up to be in a bad negotiating position by being outnumbered, or would the fact of all of these investors showing up together help us & seal the deal?

If we do just get all the investors in a room to negotiate terms, what should the dynamics in the room look like? Should we work thru terms first and save the valuation conversation to the last ($$)? Should we run it like a poker game or take a different attitude?

Well I think there is no hard and fast rule. It will depend on the people coming along to the party, their attitude and experience. You are creating an Auction situation ...

If you are a very hot property and a group of keen investors then you can say "there are 10 in the room, we will take 4 of you and there is a max of 40% up for grabs collectively" ... that is likely to start a bidding war and heavy negotiation between the people until something is worked out.

The down side is that one person could express negativity, which spreads through the remainder of the group and you end up with nothing.

Personally I would say "our minimum is $1M our target is $1.5M, there are 5 in the room. We are putting 30% or 40% on the table, how can we make this happen, is everyone in equally or how do we split this?" and let them work through how it will be done with the default being everyone is equal money in and taking equal shareholding. Someone will be able to pay more and someone will pay less and you can adjust the amounts accordingly.

It sounds like you need a lead investor because you want to set a valuation.

I always avoid the problem by doing a convertible note with a discount. In my last startup the discount was dependent on how long it took us to raise our series A.

So, in our case, the angels got between 10% and 50% more shares per $ than the VCs after the series A, depending on how early each one went in. This avoided the angels having to value the company, they just knew that they were going to get a better deal than the VC in exchange for coming in earlier.

One problem that you might have is just constantly-shifting deal terms, which makes it pretty hard to just herd everyone together and close the deal.

Do you have counsel yet? If not, I'd get counsel and would work with counsel to get some pretty middle-of-the-road terms put into a term sheet- including closing date. Once you have a pretty standard term sheet, just give it to everyone and tell them that the terms of the investment are included.

Otherwise, it could take an eternity to get everyone on the same page re: terms.

Why not just do convertible notes in this situation?