“Dead” Equity and Founder’s RemorseAug 6
I recently had lunch with an entrepreneur. He’s a graduate of one of the major accelerator programs here in town. A very thoughtful person.
For his seed round, he raised money from angels. Unfortunately, one year later, he says that only half of them will even reply to emails. The rest have disappeared. This entrepreneur told me that the angels sold very hard, that they would add a lot of value to him. He is now very disappointed.
He has “dead” equity on his cap table.
This blog post is not a criticism of angels. At our firm, we work with many of them and have had very good experiences. But this lunch reminded me yet again that it is very hard to break up with your investors, whether they are angels, VCs or strategics.
I wonder if a convertible note from a person or firm who does dozens of these a year will give much long-term commitment. Or, will you be one among many “options” in that portfolio?
And so, the best advice I have for entrepreneurs is this: choose wisely. Take your time.
Once you let in that investor, it is almost impossible to get them out. If they own a piece of your company and are not adding value, that is unproductive, or “dead” equity for you as a founder in terms of go-forward value.
One of our founders is going through this now. Against our advice, he took money from a strategic we didn’t know and normally doesn’t invest in ventures. Fast forward. That investor now has bailed. That founder now has significant “Founder’s Remorse.”