Many entrepreneurs get their first round from friends and family because of the established trust; however, it is still important to keep a professional process to ensure that you do not limit investor interest in subsequent rounds.
1. Give Pro-rata rights to first investors. While you may want to reward your inner circle for trusting in you, and they may want the protection from dilution, it is important to keep in mind that these terms can be very unattractive to future investors.
2. Give Decision-Making Powers. Unless the person has relevant business or industry knowledge, it can be terribly time consuming to get signatures for approvals to make business decisions. Let investors know you will assemble an advisory board to help guide important decisions.
3. Restrict your Share Restrictions. I have seen this more lately with angel investors which will restrict the founders from selling their shares. Even though it may seem unlikely that you would sell shares this early, the unrestricted shares are still a bargaining chip in negotiations with future investors.
4. Create a professional Business Plan and or Pitch Deck. You want your inner circle to invest because they like the idea and planned implementation which should shows a clear path to them getting a return on their investment. A professional business plan is important when raising money regardless of stage.
5. Have documents reviewed. It is always a good idea to have your offer documents reviewed by an attorney to ensure you and future investors are protected.
Feel free to contact us with any questions at email@example.com.