Today’s Pill (6): Notes on top of notes

You’re an early-stage investor, doing notes, and you should care about dilution. In the early days of the venture, with milk, honey and sprints, you and the founders are buddies. And then, reality bites in and you’ll find yourself almost kicked out. “I hadn’t thought about that before, and it rings true in the books,” you think. Your stake is smaller and smaller, and if you dream the pie is bigger, you’re wrong. You say you won’t be taken out by the Predator VC or in the next round as you can do pro-rata. Well, sometimes it’s not working like that, and what you’ve signed like one year ago or so does not protect you enough. Enter the side note: document to be able to invest at every capital raise (to be able to keep your % as long as you decide.)

Notes on top of notes are ok. Then there is a time when everything converts, and it’s a blend that draws attention to the cap table. VCs want more and more, so the investor friendly days are over. And when a big VC comes in, saying “we’re gonna help you built this Co and take it to the sky,” it’s very hard for the founders (they’ll want to push you out,) and they also have x people with them from the beginning (options pool.) Notes, options, control and economic terms; hire a great lawyer!