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Comment by thatoneuser | Hacker News Reader

Dude... Not to be a dick but you claim you have experience yet you're signing away half your company without seeing a dime and with clauses that explicitly state they don't ever have to actually pay you? None of this adds up. I have zero experience with getting funding and even I'd insist on a 10% down payment minimum. Otherwise wtf was the point of getting an investor?

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There are many conditions in which this structure is entirely reasonable. However, it gets down to the investor and their track record history. I take fault for not doing due diligence and probing them. Namely:

1. Ask for references of prior companies they have funded.

2. Identity mutual contacts with someone you both know and can verify their credibility.

3. Ask around their reputation of other VCs and people in the space.

Can you describe some of the scenarios where that makes any sense? Sounds bonkers to me too.

It is bonkers unless theres something not being explained.

https://en.m.wikipedia.org/wiki/Consideration_under_American...

An illusory promise does not count as consideration, and the courts would probably force the investor to pay up the money or, if there were no promises made, the co tract could be overturned on grounds of lack of consideration.

How is that structure ever reasonable? It might even be illegal or at least unenforceable on grounds that there is no consideration

https://en.m.wikipedia.org/wiki/Consideration_under_American...

This is a good point, I hope so.

When would this be reasonable? It sounds like Zero risk for the investor... promise money in the future in return for equity, if the idea flops they've lost nothing... ridiculous

The way it was structured would have allowed him tax avoidance on the investment, but also not be considered an investment but rather a silent cofounder, which would allow me to accept a low valuation without having a negative impact on the next round. Otherwise, it needs to be explained why the valuation was so low.

That still doesnt make sense. Was there no clause that said that he had to put in the money? And why is it a big deal to explain why the valuation was so low? I'm really co fused by what the reasoning was or even why you would spend time on closing this deal if, as you said, you had other term sheets lined up and have experience in this. Is there something we are missing here? Like is this not in the US or was the money desperately needed or something? The takeaway seems to be less about doing due diligence on investors and more about avoiding insane contracts- I'm still having trouble figuring out what exactly even happened. Thank you again for sharing this experience with us - I'd really love a bit more context if you wouldn't mind so I can understand the takeaways better. And in the meantime definitely get a lawyer.

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