📕 Startup term you should know

Ever heard of Most favored nation (MFN) clause?

Lets early investors get the same terms as later investors, if those later folks negotiate something better.

My insider scoop: Say a VC comes in after you and talks the company into a lower valuation. An MFN means you can reset your own valuation to that lower number. It's a "no one gets a better seat than me" clause.

📰 Today's topic: The deals that look too complicated are usually priced better

We ran a virtual event for Angel Squad recently with a member who left big tech to raise her own pre-seed fund. Before that, she spent years inside an incubator working with 500-plus pre-seed founders in heavily regulated sectors, filtering for the ones with real potential.

That's the sandbox she's building her fund in. And her reasoning holds up whether you're raising $5M or writing $5k checks on the side.

Hard is the whole point

Her framing: regulated sectors read as scary to a lot of people, and that is exactly why they're defensible.

The compliance burden that makes you nervous is the same thing keeping the next twelve copycats out. Nobody spins up a competitor over a weekend when the buyer is a government agency and the product has to survive an audit.

Where that shows up in your returns

Fewer investors chasing those deals means valuations stay reasonable. That's not a vibe, it's arithmetic.

Say you put $5k into a compliance-heavy startup at an $8M cap. Then you put another $5k into an AI tool at a $25M cap.

Both companies exit at $200M. The first check comes back roughly 25x before dilution. The second, roughly 8x.

Same money in. Same outcome for the company. Three times the difference, decided entirely at entry.

The exits look different, and that's okay

She made another point I don't hear often. In sectors like civic tech, there are real incumbents sitting there, and they buy things.

That tends to produce singles, doubles, and triples inside a three to six year window rather than a decade-long moonshot.

For a $5k check, liquidity in year five is a very reasonable trade against a maybe-unicorn in year twelve.

What she screens for

Her real edge isn't the sector. It's that after hundreds of those founders, she knows which traits and which hypotheses tend to survive contact with a regulator.

The cheap version for the rest of us: ask the founder to walk you through the rules.

A weak answer sounds like "we're working with counsel on that." A strong answer is specific. They name the regulation, the agency, the length of the sales cycle, and what they've already gotten in writing.

Founders who treat regulation as the product talk about it like a feature. Founders who treat it as a risk talk around it.

Try this on your next deal

When something makes you think "this seems complicated," go look at the cap before you pass.

Complicated and cheap is a perfectly good place to put $5k.

– Brian from Angel Squad

Overheard in SF…probably

“We're pre-revenue, pre-product, and pre-team, but the vibes are unmistakably Series B.”