In a seed round, is it poor form to accept a lower cap from later investors?
There are a [very] few companies, mostly on the West Coast, that have done convertible rounds with differing caps, but it’s unusual, hard to do, and not something that will endear you to the less-fortunate investors.
If you find yourself in a situation where (a) you absolutely need/want the $4 m investor, and (b) those are the only terms on which s/he will come in, then typically you would unilaterally lower the cap for all other investors in the round as well.
The one alternative that is sometimes used in cases like this (particularly where it is very apparent to everyone that this investor will really be adding ongoing value) is to do the round at the same $6 m cap as everyone else, but the put the investor personally on the company’s Advisory Board, for which service some additional equity would be granted.
*original post can be found on Quora @ http://www.quora.com/David-S-Rose/answers *
Written by David S. Rose
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