This week’s reading of Winning Angels by Amis and Stevenson focused on the topic of structuring, specifically as it pertains to investment deal structure. This is certainly not a topic in which I have a lot of experience or knowledge; however, I did find it interesting as it is obviously a very important aspect of either investing in a company or finding investors as an entrepreneur. The three structures discussed in this book include common stock, preferred convertible with various terms and convertible note with various terms.
The common stock structure seems to be the least structured of the three. It generally involves a little more trust in the entrepreneur and partners. The other two have more terms and offer more protection to the investor, but they can also sometimes be complicated and sour relationships between investor and entrepreneur. In a perfect world, it would be nice and simple to be able to trust everyone you are going into business with so that everyone benefits in a fair and equitable way. Unfortunately, not everyone can be trusted and when it comes to investing large amounts of money, it seems reasonable to want to have some terms set in place to protect the investment.
While I have never been in a position to be an angel investor to an upcoming company, I have had a recent experience of exploring the opportunity to invest/buy-in to the ownership of a business. As someone who has never been in that position before, I made sure to reach out to people who could provide me some insight and guidance into things to be looking for while doing my research and deciding if it is a worthwhile investment. I talked to other SMEs in the industry, lawyers, and CPAs. I am extremely grateful that I did because they all helped me to come to the realization that given all of the circumstances, what was being asked for would most likely not be a good investment for me at this time. The point I want to get across from my very small experience is that having a strong network can be vitally beneficial when it comes to dealing with aspects of business that you may not have much experience with. I not only utilized preexisting connections, but I also branched out and made new ones through this process. While things did not work out how I originally hoped or envisioned, I certainly learned a lot.