Angel Investing - Help me understand
I have an MVP version of a startup idea. No revenue yet. Someone is keen to angel invest. How does this work? Can someone answer these questions for me?
- If suppose Person X puts in 50L, how do I value my company and thereby equity?
- How do I authorise and distribute shares?
- Someone mentioned I should do a SAFE - can someone explain how'd that work and would that be a better option than choosing a random number
- If I give 20% of company for 50L, how does that change if I raise a future round? Do I issue additional shares?
Anyone who has had experience here will help
Read the book “secrets of sand hill road” - probably the only book that easily summarises how VC funding works
If short on time - find a youtube explainer on the book
Firstly you need to value the company according to market research and references. If there are other startups in the space and what they're valued at.
Distribution of shares happens while incorporation. Investment will be added after incorporation if I'm not wrong, not entirely sure.
SAFE can be risky for founders, better to have a valuation before hand. Otherwise investors can get a lot more than 20% depending on terms. Ideally you shouldn't give away more than 10-15% equity in the first round.
In the future rounds the existing shares will be diluted to make way for new shareholders. Or one of the existing holders can sell their stake. New shares are not created.