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Venture Deals

Is investing in non-voting shares of a pre-seed company a non-starter?

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Jul 28, 2023
Great company with good traction and an impressive founder. 
1 answer
Accepted Answer
Jul 28, 2023
Generally speaking, investing in non-voting shares of a pre-seed company is not recommended nor best practice. 

Notwithstanding the traction and founder, if a Delaware domiciled startup is raising funding in a typical pattern, it typically raises on a SAFE (or similarly structured convertible instrument) - these will convert into Preferred Equity upon the company raising a priced round (Series Seed or Series A). Preferred Equity will most definitely have voting rights (in fact most of the time there is a separate lengthy legal agreement spelling these rights out).

If such a startup is offering common stock to venture capital firms, with the added stipulation that these shares do not have voting rights, it warrants caution. 

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