Episode Summary:

Understanding how to invest in startups requires more than just writing a cheque. Cheryl and Maxine break down the legal structures behind startup investing, covering SAFE notes, convertible notes, and priced rounds. Whether you're a seasoned investor or just starting out, this episode unpacks the key terms, investor-friendly vs. founder-friendly clauses, and the risks involved.

They discuss the evolution of SAFEs, why they've become the dominant structure in early-stage funding, and the critical differences between pre-money and post-money SAFEs. Plus, they explore the role of pro-rata rights, most favoured nation (MFN) clauses, and side letters—so you don’t get caught off guard in your next deal.

If you’ve ever wondered how to protect your equity position, when to push back on certain terms, or what legal documents you’ll actually be signing, this episode is your investor cheat sheet.

Key Takeaways:

00:00 – Why startup investment structures matter

01:45 – SAFE notes, convertible notes, and priced rounds explained

03:47 – How founders raise money: equity vs. debt

06:21 – The documents you’ll sign in a priced round

10:22 – Do startups need a constitution? Red flags to watch for

14:29 – Side letters: What are they, and should you be worried?

19:08 – Pro-rata rights & why they matter for investors

22:23 – Most Favoured Nation (MFN) clauses explained

30:27 – Pre-money vs. post-money SAFEs: Which one is better?

38:03 – Why valuation caps and discounts can be a double-edged sword

43:53 – Investor-friendly vs. founder-friendly terms: What’s fair?

Resources

- A Deep Dive into ECIS, ESVCLP, and Investment Strategies - https://open.spotify.com/episode/1Agiu4dskF53m6DBZgXitD?si=KFeAlY_wTjSwOWfRMiiQFA

- Angel Academy – The most comprehensive angel investing course for Australia & NZ: www.venture.academy

- Aussie Angels – Cheryl’s platform for angel investing https://www.aussieangels.com/

- Co-Ventures – Maxine’s venture capital firm https://www.coventures.vc/

Sponsors:First Cheque is supported by our wonderful sponsors:

Aussie Angels makes it easy for accredited investors to back early-stage startups alongside experienced syndicate leads. With no platform fees and minimum cheques from $2,500, you can build a diversified portfolio of high-growth companies with confidence.

https://www.aussieangels.com/

Galah Cyber: Galah Cyber are perfect for founder-lead and SAAS businesses. Galah provides advice, education, and training. Get in touch with Galah Cyber for a complimentary call to make sure you’re secured.

https://dayone.fm/galah

First Cheque is part of Day One.Day One helps founders and startup operators make better business decisions more often.

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Mentioned in this episode:

November 2024 - Galah Cyber

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