Same round, same terms

Sometimes in fundraising processes, there is this one investor who wants special treatment. I’m not talking about the lead investor wanting a board seat (which is completely fine). I’m talking about that 7-percent-of-the-round-angel who has “so much to offer” they believe they deserve a better deal than the rest. Some warrants, a lower price, or maybe some sweat equity for the “exceptionally” good advice that will be given.

The answer to such requests is just about always no (if Ron Conway wants to invest, fine, break the rule). Investors investing in the same round should get equal treatment.

Let me start by saying that equal treatment of all investors is unfair. Everyone gets the same number of shares per dollar invested, but the degree of contribution is the opposite of even. Theoretically, there is a more fair way when it comes to investment terms. But in practice, this is too complicated. The transaction costs related to such a way fair outweigh the benefits.

Try thinking about it. If two investors should get different terms because of different contributions - how do you measure such contributions? In number of hours? Or in effect of the work they do. Either way, this means overhead for you as a founder because you have to measure and account for this contribution. And what if the contribution is not as promised? Do you buy back some of the shares? Do you give all other investors some extra shares? It’s a mess without an end.

That’s why you should always choose to go for equal terms for investors investing in the same round (except lead investor terms). It’s like the saying about democracy, that it’s the worst form of government except all the others. Same round, same terms.

Then again, nobody outside the founders and employees really matter. The rest of us are all this dog :)