The Structure section of Winning Angels is based on two distinct opinions when it comes to the structure of the deal. One says that structure does not matter, one says that structure matters a lot. Most angels will agree that the what and who of the venture are the most important aspects of any deal, and that the terms of the deal are secondary to the success or failure. I must agree that in my business experience, the most important components of a successful partnership are the people and the product. The terms or structure of a business relationship are very necessary but secondary in importance for a successful recipe.
I have two takeaways from this section. The first is the Cary One-Pager. Similar to the one-pager we learned about in the Sourcing section, the Cary One-Pager is draft of a deal written on one page describing the main elements of a deal between the angel and the entrepreneur prior to involving a lawyer. The key points are:
- Capital structure
- Investor involvement
- Expected minimum time commitment for the entrepreneur
- Salary level for the entrepreneur
- A reporting mechanism
- Other items of importance as needed
This one page document can be used to provide clarity and understanding for the two parties and a basis for the legal contract. I believe this is a great concept that should be utilized in many facets of business because it sets clear expectations up front and creates a clear path to move forward with a deal.
The second takeaway for me is the chart of preferred deal terms, table 35.1 on page 214. This chart breaks down a deal into three options:
- Common Share Structure
- Preferred Share Structure
- Convertible Note Structure
The chart goes on to list a series of elements for each type of structure that are must haves, ought to haves, nice to haves, and must avoid. This chart is easy to understand and implement if you are a rookie angel, and seems to provide a good road map to create the Cary One-Pager if not even a formal contract with your lawyer.
David Amis and Howard H. Stevenson. Winning Angels: The Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.