Common for angel investors to have put options for investment amounts?


I am considering an equity or convertible debt investment in a startup. As an angel investor, would it be out of line to ask to be given a put option? If the company raises at least $X from other investors, I'd like to be able to require the company to buy out my investment, perhaps for my initial purchase price plus accrued dividends, or something else that's pretty fair.

I am not confident that this investment will be a good one; I'm doing it partially for resume-building, as I'll be on the startup's advisory board and want a foot in the door in the industry. I'll also be making some introductions for the company to venture funds. I don't want to lose all of my investment, though.


Angel Put

asked May 27 '13 at 11:07
1,747 points

1 Answer


It's not out of line to ask for a put option, although it is unusual.

There's a famous saying to keep in mind, though: "last money in writes the rules". Right now you are last money in, so you can ask for the put option, which the company will either laugh at or grant depending on how much they want the money. However, when the next round comes, perhaps a substantial round, they will want to clean up the balance sheet. They may then ask you to tear up your put option as a condition of their money going in, at which point they will have good leverage, and you are highly likely to go along with it rather than see the company fail and you lose everything.

The less confusing/complex the terms you put in on your angel investment when you make it today, the more likely the terms will be honored by later investors. (By the way, the person who will be negotiating on your behalf will likely be the entrepreneur(s)/CEO: if you really want to make terms stick, you need to know the entrepreneur is 100% on your side in granting and enforcing your terms, and is not forced into it, because the new investor will talk with them, not you.)

If you are doing the 'put option', the best way to do it is through making the investment with a convertible debenture ... and then the 'put' will be some sort of clauses around how the debenture can be 'called' and you can force repayment in certain circumstances. That will give you more leverage and is easier to understand/overlook than a separate 'put option' attached to equity, which is easier to tear up. (It's also tough on the company.) The fair formula in that case would be amount plus interest, which isn't much upside considering the downside risk you are taking (see next).

Lastly, let me answer the question you didn't ask: it sounds like you shouldn't make this investment. If you "don't want to lose all of my investment" then you shouldn't be making an angel investment. The odds are maybe 80-90% that you WILL lose all of your investment, in any angel investment you make. (I have more on that in a recent blog I wrote that you can find by checking my profile.)

answered Aug 12 '13 at 01:32
Kamal Hassan
1,285 points

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Angel Put