As explained in the article:
Says Nick Mehta, another one of the first scouts, “They
definitely left it open to us but told us to think about the
impact on the entrepreneur. We were told we should tell the
entrepreneur. But they told us to make sure the entrepreneur
thinks about it before they broadcast that Sequoia is an
investor because of the signaling effect if Sequoia didn’t
invest later on.”
Re:Sequoia's Scout Program
by hnthrowaway84 on Friday May 04, 2012 @06:42PM
(#3930659)
"easily add a representation to their seed docs to prevent this or at least force disclosure"
Could you please elaborate on this point?
Re:Sequoia's Scout Program
by paulsutter on Friday May 04, 2012 @07:31PM
(#3930794)
A lawyer would write it, but something like "Investor represents that he is investing his own personal money and not on behalf of another party". If the investor turns out to be a scout, he has to negotiate that term out and you get the chance to understand what's happening.
Representations are great. Anytime you are negotiating a deal, and the other side makes some crucial claim that persuades you to accept the offer (for example, "all of our other partners agreed to this term!"), just insert that claim as a representation of theirs and watch if they squirm.
Companies can easily add a representation to their seed docs to prevent this or at least force disclosure. The ethical and legal questions are around exactly how the scout/angel presents the investment, how the rights work, how the agreements are written, etc.