Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

The first time you negotiate investment terms, you'll probably mess it up.

Maybe you'll push too hard on valuation and the founder will ghost you. Maybe you'll accept terms so bad that other investors laugh when they see your position. Maybe you'll accidentally create a dynamic where the founder sees you as adversarial instead of supportive.

Here's the thing: negotiation in angel investing isn't like negotiating a salary or a car purchase. You're entering a 7-10 year relationship with this founder. How you handle this negotiation sets the tone for everything that follows.

The Fundamental Truth About Leverage

Most angels have no leverage. Founders have options. There are a lot of investors out there, and if you're difficult, they'll just take money from someone else who isn't.

The only time you have real leverage is when: you're writing a check big enough to make or break the round, you bring something uniquely valuable beyond capital, or the founder is struggling to close their round and running out of time.

In most cases, none of these apply. You're writing a $5,000 to $25,000 check. You're helpful but not irreplaceable. The founder has other interested investors.

This means your goal isn't to win the negotiation. It's to make sure you're not accepting terms that are quietly terrible while maintaining a positive relationship with the founder.

What Actually Matters in Early-Stage Terms

Most angels obsess over the wrong things. They want board seats. They want information rights. They want pro-rata guarantees.

What actually matters at the early stage is valuation and instrument type. That's about it.

The valuation determines your potential upside. If you invest $10,000 at a $3 million post-money valuation versus a $10 million post-money valuation, the difference is massive. In the first scenario, you need a $300 million exit to 100x your money. In the second, you need a $1 billion exit.

The instrument type determines when you convert and at what price. Post-money SAFEs are generally more founder-friendly than pre-money SAFEs or convertible notes. If you're a small angel, you probably don't have enough leverage to demand a convertible note. Take the SAFE and move on.

Everything else is noise. Board seats for angel investors are usually worthless and create obligations you don't actually want. Information rights sound good but most company updates are vague and unhelpful anyway. Protective provisions don't matter when you own 0.5% of the company.

The Valuation Conversation

The hardest negotiation is usually around valuation. The founder wants $8 million post-money. You think $5 million is more appropriate. How do you bridge this gap without looking like a jerk?

First, understand that valuation at the early stage is almost entirely vibes-based. There's no DCF analysis that makes sense for a pre-revenue company. The valuation is what the market will bear, which is determined by investor demand and momentum.

Elizabeth Yin from Hustle Fund has talked about how founders can rapidly increase valuations by creating momentum: get multiple investors interested, do meetings back-to-back, create time pressure. If the founder is doing this well, they can legitimately double their valuation in a week.

Your job as an investor isn't to fight against this. It's to decide whether the opportunity is attractive at the price being offered. If yes, write the check. If no, pass and be honest about why.

The mistake is trying to convince the founder they're wrong about their valuation. They're not wrong. Valuation is subjective. You're just not interested at that price. Say something like: "I love what you're building, but at this valuation I'd need to see a bigger exit than I'm comfortable underwriting. If the round doesn't fill and you end up with space at a lower number, I'd love to participate."

This keeps the door open without being adversarial. Maybe they fill the round at their target valuation and you miss it. That's fine. Or maybe they struggle to close and come back to you in a few weeks with a lower number. Either way, you haven't damaged the relationship.

Pro-Rata Rights: The Thing Everyone Wants and Shouldn't

Every angel wants pro-rata rights. The ability to maintain your ownership percentage in future rounds sounds great. If you own 1% now and the company raises at 10x the valuation, you can plunk down more capital to keep your 1%.

Pro-rata isn't about maintaining ownership. It's about capital allocation. When you have limited capital, you need to decide where that capital generates the best returns. Sometimes that's following on in a winner. Sometimes it's putting that same capital into new companies at lower valuations.

Most angels shouldn't push hard for pro-rata rights because: you probably can't afford to exercise them anyway, you want the option but not the obligation, and founders often agree to pro-rata as a throwaway since most angels never exercise.

If you're writing small checks, don't even bring it up. If you're writing larger checks and want pro-rata, ask for it but don't make it a deal-breaker. The founder will probably say yes since it costs them nothing if you don't exercise.

Timing: When to Actually Negotiate

Something most angels get wrong is they try to negotiate before they have leverage. They say they're interested and immediately start pushing for better terms.

The time to negotiate is after you've established you're seriously interested and the founder wants you in the round. Ideally after you've provided value, made helpful intros, given product feedback, helped think through strategy.

Hustle Fund talks about honoring commitments in fundraising. If a founder tells you the cap is $5 million and you verbally commit to invest, you can't come back later and demand $4 million just because you feel like it. Your word needs to mean something. As Elizabeth Yin puts it: "In addition, investors talk. A LOT. I've seen investors not touch a deal because a founder screwed over 1 investor."

The same applies to investors. If you say you're interested at $5 million, then try to renegotiate to $4 million after the founder has been counting on your capital, you look like someone who can't be trusted.

Don't commit until you've decided what terms you're comfortable with. Then commit clearly and follow through.

Side Letters and Special Terms

Sometimes you want something that doesn't fit in the standard SAFE or note. Maybe you want specific information rights. Maybe you want pro-rata with a guaranteed allocation. Maybe you want to invest now at this valuation but have the option to invest more at the same valuation in the next 90 days.

These go in side letters. The problem with side letters is they create asymmetry. You're getting terms that other investors don't have. This can cause problems down the road when everyone finds out the deal they got isn't as good as yours.

Small angels should almost never ask for side letters. You don't have enough leverage and you risk annoying the founder. Large angels who are writing $100,000+ checks and bringing significant value beyond capital can potentially negotiate side letters.

The key is making sure the ask is reasonable and the value exchange is clear. Don't ask for special terms just because you can. Ask for special terms when there's a legitimate business reason and you're bringing enough value to justify the exception.

The MFN Trap

Most Favored Nation clauses sound great. They say if anyone gets better terms than you in this round, you automatically get those terms too. Protection against being the sucker who accepted bad terms.

But MFN creates weird dynamics. It discourages founders from giving anyone better terms, which can make it harder to close the round. And it can create conflicts between investors as everyone tries to get the best deal.

Most professional investors don't ask for MFN because they trust that founders are being straight with them about terms. If you're in a situation where you don't trust the founder to be honest about terms, you probably shouldn't invest.

When to Just Walk Away

Sometimes the terms being offered are genuinely bad. The valuation is absurd relative to traction. The founder wants a guarantee you'll invest your full pro-rata in all future rounds. The structure gives you no real ownership or control.

In these cases, the right move is to pass politely and move on. Say something like: "I love what you're doing but the economics don't work for me at these terms. I'd love to stay connected and see if there's a fit in the future."

Don't try to save the deal by negotiating aggressively. The founder has decided these are their terms. Either accept them or don't, but don't create conflict by trying to force a different structure.

Building Real Leverage

The best negotiating position is not needing to negotiate. If founders want you in their round because you're genuinely helpful, you don't have to push for terms. They'll offer you favorable treatment because they value the relationship.

This means the work happens before the negotiation. Be helpful to founders before you invest. Make valuable introductions. Give honest feedback. Build a reputation as someone who adds value. When founders want you in their round, everything gets easier.

The Long-Term View

Remember that these founders are often second-time or third-time entrepreneurs in the making. The person raising their first $500,000 seed round today might be raising a $50 million Series B in three years or starting their next company in five years.

How you treat them in this negotiation determines whether they come back to you for the next round. Or the next company. Or refer their founder friends to you.

Play the long game. Be fair. Honor your commitments. Don't nickel-and-dime founders over terms that don't actually matter. The best angel investors build reputations as people who are easy to work with, and that reputation creates more deal flow than any negotiating tactic ever could.

If you want to learn how to navigate these conversations from people who've done it hundreds of times, Angel Squad provides access to experienced investors who can share what actually works. Because the best negotiating strategy is usually being the kind of investor that founders actively want in their cap table, not the one they tolerate because they need the money.