Pro-rata rights

I have been doing angel investing now for over four years.  I have been taking in deal information vicariously through Fred for the past 25.  I have learned a lot these past four years.  It is like anything, the more you do it the better you get at it. 

Yet, in the world of angel investing, there is always huge risk no matter how good you think you are.  Every deal is different, every idea is different, every entrepreneur is different, the timing of every deal is different, the group of investors and advisors are different.  There is only one thing that can be consistent on each deal, the legal paperwork. 

I am happy to take a risk on an entrepreneur or an idea that has been executed on.  An idea that is just starting to show some traction but I am not willing to take a risk on a legal document.  Both categories are very different.  It sounds crazy that I'd be willing to risk my money on a deal but not on a legal document but the most important piece of starting a business is the legal foundation. 

Certainly as deals grow to larger investments in their Series A and Series B rounds there can be some creative thinking behind a legal document. The beginning of a company is not creative but pretty standard stuff. 

I will walk away from a bad document.  I am also willing to walk away if I don't get my pro-rata rights.  Many angels invest in the first round and sometimes they invest again in the second round, and then they are out when round three takes place.  I don't want to be out.  I feel like I took the biggest risk coming in at the very beginning and with that I want to continue keeping my percent of the company that I bought in the first round by continuing to participate (invest) in each round at my pro-rata share.  I am in it for the upside.  If the company is proving to be successful then I want to be rewarded in the upside for my risk. 

Most VCs use documents on their Series A that say unless someone (angel) invests a significant number (say $350-1M) then they can not continue with their pro-rata rights on the next round.  I think it is absolute bullshit.  The VCs should allow the angels to continue to put in their pro-rata share if they want to. 

It is like buidling a house.  When you start, you love (well I don't) your architect as they are your first contact as you start to build your dream.  Then once they have finished that part you then hand over the finished documents to a contractor.  Then you move towards loving your contractor and are in their camp no matter what happens because they are building your home.  You hope that the contractor and architect have a good working relationship because you want to continue those relationships too when the house is built.  There is value to the first person in your deal.  Sometimes there isn't but if they are engaged properly, there can be. 

I certainly want to see success, at any level, at all times.  I really want to help the entrepreneur build their dream and I want to make sure I can continue being part of the dream at every turn. Some turns get wider and my input will be less frequent but I still want to be part of the process.