As a startup lawyer in Texas, I get this question a lot: what terms should I offer investors?
Here’s my answer to that question:
The best terms to offer are vanilla terms.
Don’t get this wrong. This does NOT mean that you should screw yourself over to appease some investor. That’s not what this is about at all.
Vanilla terms are sexy. They are reasonable. They have some objective basis. Remember: vanilla terms for the founder also mean vanilla terms for the investor. I see a lot of founders with their head in the clouds and they want all sorts of crazy terms. Likewise, I also see some investors want crazy terms as well. But that just doesn’t work out well. By the way—those folks that are like that usually fizzle out pretty quickly.
So how do you do this? How do you know and offer vanilla terms? Vanilla terms are just reasonable terms. First, get a good grasp of how startup funding calculations are done. Then review the basics of a priced round financing . Next understand what’s reasonable when it comes to terms and from there you’re good to go.
Remember: good fundamentals in every aspect builds good startups.