Will angel investors expect dividend payments?


5

As an example, I have angel investors group that own 32% of the company, and I own the rest. If we are doing better that expected (with the agreement of the shareholders) It may be appropriate to pay out some dividend to myself as a bonus.

If I do this, do the investors also expect payments?
At the end of the day it will make the company worth a bit less when we come to exit so is it in their interest anyway?

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asked Aug 22 '13 at 22:31
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Darkcat Studios
190 points

3 Answers


6

If it is in your agreement then yes they will expect it. If you and your angel investors own the same class of shares then you legally can't pay out a dividend to yourself and not to them as dividends are divided up equally amongst share classes. If you want to take money out and not give it to them, for whatever reason, you should probably take a profit share (if this is in your agreement) or straight up salary.

Dividends are a sign of strong earnings so I doubt this will make your company worthless, unless you're paying a dividends when the company's income is not yet stable or it appears to be robbing the company of growth capital. Remember it's not your money, it's the company's money and you are tasked with the company's best interest. If the company has strong sustainable income that justifies a dividend it will make the company incredibly more valuable.

I would talk to your angel investors. One of the points of being an angel investor, besides taking the upside of the risk, is to coach. They will know your company better then we do on here and should (unless they don't have your best interests at heart which means they are not angels) give you proper custom advice on this.

Good luck, and congrats on creating a successful startup!

answered Aug 22 '13 at 22:38
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Ross Mann
546 points
  • excellent answer - just as i suspected yes. As mentioned by "DataSmarter" some sort of bonus payment would be better in this case. – Darkcat Studios 6 years ago
  • Yeah bonus would be another way for you specifically to get some money out of it to compensate you for your efforts that wouldn't have to be evenly distributed. – Ross Mann 6 years ago

4

If the dividend is paid, it's for everybody! Not for only one/some investor(s).

And indeed, when cash leaves the company, it's value decreases. So, generally speakinkg, there are 2 possibilities:

  • they want to stay investors for some more time and don't think that the cash exit can cause some troubles = they can be happy by the dividend and already recuperating a part of their investment
  • they want to sell their participation in the company (and thus prefer to have it worth the maximum) or they think that it could put company in trouble = they will probably be against the payment of the dividend.

It depends a lot on the angel investor intention and on the fact, if there is really an EXCESS of cash.

The situation you describes could probably be easier solved by some kind of bonus for you instead of by a dividend.

answered Aug 22 '13 at 22:45
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Data Smarter
1,274 points
  • The last sentence is right on. Pay yourself a **bonus**. Dividends are double taxed. My experience is that investors want a sizable return, not dividends. – Tlueker 6 years ago

3

I am a huge fan of paying dividends (and yes, to Ross Mann's point, you have to pay dividends to all shareholders equally, including both management and angel investors).

This is a great way to reward yourself for a job well done, and to allow you to take some cash of the table from the profits you have created ... and it's also a great way to thank and reward your angel investors for backing you. Too many people think you need to sell the company in order for the founder and angels to profit from success. That's not true. Dividends are a great way to reward everyone involved!!

Sure, the paper value of the company goes down by the amount of the cash paid ... but you can't use paper value to buy things. There are lots of people (including myself) who have gone from paper millionaires to nothing when the paper turns worthless. The dividends? Those are still worth something!!

For more details, here's a blog post.

answered Aug 22 '13 at 23:07
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Kamal Hassan
1,285 points

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