How do I choose the contract and set the terms?
Your investment contract is the most important part of your fundraise. If you choose the wrong contract, or have bad terms, no one will invest, and you will have wasted a lot of time. It's like trying to sell a dozen eggs for $100. People are not stupid.
We recommend using Wefunder after at least one angel investor who already knows you has invested $25,000+. This makes it far more likely you chose the right investment terms.
That said, we know in some parts of the country, there are just not many angel investors who invest in early stage companies. So we'll try to help figure out what are good terms if that's the case.
The right terms is very specific to your company, but here's some general advice for two kinds of companies that are more unlikely to have prior investors:
For an early stage technology startup that has as a reasonable chance of getting funded by venture capitalists, we recommend either a convertible note or a Wefunder SAFE. Valuation caps for early-stage technology startups with no prior investors can range from $2 million to $5 million. It's possible for the very best early-stage startup (such as a Y Combinator startup) to raise at closer to a $10 million valuation cap. However, if that's the case, then you will be in a position to have at least one prior professional investor who set the terms.
- For an early stage brick and mortar with expected cash flow, we recommend a revenue share contract. We recommend offering at least a 2X return. Then, make a spreadsheet of all your projected cash flows for the coming 6 years. We recommend choosing the percent of revenue to share that would investors a predicted 10%+ annual return.