Q: Can the initial angel investment round be changed 2 years later to benefit the board members and not the remaining investors? There have been several safe note investments but not a series A yet.

Oh, for sure.

When you make an angel investment, you are trusting the founders. Trusting that the price, ownership, and cap table will stay roughly the same until the next round.

But it’s pretty easy to change it:

  • The founders can issue themselves a lot more stock. The new investors may also request it as part of a restructuring and/or as further incentives for founders.
  • The new investors can adjust the option pool (if there is any) to often effectively change the valuation substantially from expectations.
  • Notes and some SAFEs can be modified or waived by a majority of investors, oftentimes without the others even knowing.
  • Notes can sometimes be redeemed for 1x the investment or other fixed prices. I’ve seen this twice. Some notes and debt allow investors’ shares to be repurchased in the next round at 1x with interest, or something similar.

And more.

The bottom line is as angel, or as an non-major investor, and certainly as any investor via notes or SAFEs, you just don’t really know what you are getting. And founders can take advantage of that. 

Most don’t. Quite a few do, however.

You have to have a bit of faith in the end.

(note: an updated SaaStr Classic answer)

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