A VC/Angel I am negotiating with wants a clause whereby founders have to sell all vested shares if they leave in good terms. Is this normal?

I'm a small-time investor and have been working for and with startups for 13 years. The time to take seed capital is: - When you've proven demand for your product by making sales. - When you have at least one repeatable, predictable, and profitable system in place for selling your product. - When taking an equity investment would let you grow the company faster than the other means that might be at your disposal: bootstrapping, debt financing, organic growth, joint ventures, etc. There's a trade-off. You want to get the idea validated up-front and get as far as possible as you can on your own, but not spend so much time doing this with meager resources that the opportunity passes you by. You don't want to give away the whole company to your investor, but you also don't want to stunt your growth and give up huge potential profits just because you were holding out for slightly better terms. The better your sales, and sales growth, the better the valuation you'll be able to negotiate. A great idea and a proof-of-concept alone are worth basically nothing. A company with sales is worth more. A company with sales growth is worth even more. A company with month-over-month sales growth, ongoing relationships with customers who repurchase, and steady-state profitability is worth *much, much* more. (Steady-state profitability means that if the company's number of customers stays the same, the business operations turn a profit. Often, early-stage companies that have a recurring-revenue business model will spend more to acquire a new customer than they earn from the first sale; the cost of acquisition is amortized over the lifetime of the customer. This is because they want to grow their recurring-revenue base and increase future profits at the expense of short-term negative cash-flow.) All that being said, if you think you will need venture capital funding in the future, you should start looking for it long before you're going to need it. Have a "Plan B" in place, too. Don't get stuck with your back up against a wall, hoping and praying that your seed round will close before you start bouncing checks. If your investor knows you're going to go bankrupt without the investment, they have a lot of leverage for getting very favorable terms!

Mark is wrong. I personally know of a handful of companies in that exact same situation and most importantly that have good traction and the cap table NEVER came up once, and each of these companies have raised in excess of $1m in seed funding from great investors this year. Especially if your shares are common shares and/or have no particular unique traits about a share class, and especially if you can document the time and resources your firm expended to build and maintain the service that now has traction, this will not be a problem. Investors give many excuses when they don't want to do a deal but those excuses are rarely the reason for not pulling the trigger. The issue is more likely to be that there are two business folks running a company without a technical founder, which is almost always a deal-killer but that has nothing to do with your equity share. Happy to talk to you in a call if you'd like.

I haven't seen a deal structured this way. Usually they get 6-10% equity I exchange for some small amount of money ( ~ $25k ) and tons of mentorship. 15% for $20k seems high ( you are valuing your company at $133k ) but there might be more to it. Accelerators are great specially for unknown founders. It gives them a fair chance of connecting to the people that well connected founders have access to and really get a shot at proving themselves. The accelerator should have access to great mentors, investors and previous successful founders. It should also be vested in the success of the company ( thus the equity ). If you sell them equity for the $20k, you don't owe any money if you fail. They get equity ( in very favorable terms ). If your equity turns out to be worth nothing ( I.e your company closes ) it's a loss for them and you but you should owe any money. Best of luck!

In my experience, every step you take to complicate your company's structure and ownership rights reduces the likelihood of investors providing your venture with seed funding. To attract seed funding, investors expect a single-minded laser focus on the entrepreneurs' assessment of his or her best path to validating their business and growing it into a very large business as quickly as possible. So the very idea that you are reliant or considering taking multiple paths to success is likely to act as a red flag for most experienced early-stage tech investors. Also, until there is significant traction achieved, an investor is expecting to own everything generated by the business. There are rare occasions where a particular asset, brand, domain or other component of the business can be spun-out (usually in the case where it's a distraction from the core business but there's inbound demand from a buyer), but when I say rare, I mean this happens so infrequently that it's not anything that should be reasonably expected in the course of planning. Speaking candidly, this entire strategy creates a perception (accurate or unfair) that you are undecided on a number of the key questions you need to be sure of before you have a good chance of raising seed funding. I'd be happy to talk to you about what you're doing and help provide some clarity based on what I hear. I encourage you to review my references as I have been helpful to many other Clarity members on these types of issues.

AngelList is your best bet. Since you're asking the question, chances are you don't have a way to get introduced to these investors. The simple truth (like it or not) is the chances very low that you'll get a deal done without an introduction from someone they trust. AngelList can help with that, so can going to networking events. And finally, If you're the introverted developer type, you can also get their attention by just building something really cool on your own, followed by some serious traction. Arguably the best strategy of them all.