December 6, 2007

Are you a bank or an investor?

We had a fantastic webinar this morning on “Angel Investments and Term Sheets.”  During the presentation, the attorney (Karl Israelsen from Stoel Rives) talked about “traditional” deals and terms that are coming across his desk.  Part of the discussion was about terms that could possibly be included in a debt or convertible debt deal.

One thing that the attorney cautioned entrepreneurs on was taking terms with a personal guarantee.  By definition, the term investor means that you will be taking up some risk.  When an investor includes personal guarantees with other traditional terms (security agreement on company assets, convertible option, higher interest rate, etc.), that investor is then acting more like a bank or a financial institution and not an investor.

This topic usually stirs up quite the discussion — especially with those “investors” that like to include personal guarantees.  What do you think about the subject?  Should investors feel ok about attaching personal guarantees on the deal to reduce their risk?

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