Ask HN: Potential investor wants to partner for equity

1. No deal is too good to walk away from. As soon as I smelled something, I should've said, "Thanks but no thanks."

2. You run a straight Delaware C corporation, not an LLC. If there's preferred stock the investor gets none of it. Use a boilerplate vesting schedule that lets you cut the investor loose if they turn toxic.

3. You retain access to the corporate checkbook. If investor balks, run away from the deal screaming.

4. If your investor has a change of heart (or health event, or divorce, or drug problem) in the next 9 months, it will be harder to raise money without his full buy-in than without his involvement at all. "Why isn't so-and-so putting in any of his money for this next round?"

If the contract is framed around time, then understand that you'll be just one of many hobbies for a newly retired exec who wants to feel young and important by dabbling in startups. Those nine months can go by quickly with minimal part-time participation, and then you'll have dead weight on your cap table.

A better alternative is to base their earned equity on milestones - for the next 12 months, every $100k ARR they directly bring in earns them 2% of the company, up to 10%. If they play golf while you grow the business, they get nothing. If they are a killer and bring $500k in ARR, you'll have your GTM, raise a strong Seed round at a valuation of $15-$20M, and they'll get their 10% (less the shared dillution of the Seed round).

What happens when he leaves and suddenly your metrics plateau because he was the only one selling the platform? Is he going to bring in and train a revenue organization in that time too?

Carefully consider how much capital to offer based on the value the angel investor will provide in the short term, and structure an agreement reviewed by a qualified startup attorney to protect your interests. Do not sign anything without fully understanding the terms and implications. Good luck.

Lack of long term commitment.

It makes for a misalignment of interests.

For example, leaving your company and reentering the market as a competitor.

Or keeping leads on the side for their future company.

Think about how your company will be able to make sales once the salesperson leaves.

Good luck.