Equity or Convertible? How Angel Deals Get Structured in the US and Europe

Two instruments do most of the work in angel investing: priced equity and convertibles. The choice between them decides when the company gets valued, how much of it changes hands, and what happens to everyone in a downside. It also looks meaningfully different depending on which side of the Atlantic you are on.

This is the practical version, for founders deciding what to offer and for new angels deciding what they are comfortable signing.

Equity: you buy the shares now

The investor pays cash and receives shares at an agreed valuation. Simple, final, and it forces the hardest conversation immediately: what is this company worth today.

The terms that actually matter in a priced round:

• Pre-money valuation. This sets the price per share and therefore how much of the company the round costs you.
• Ownership percentage. What the investor holds after the round closes, including the effect of any option pool created as part of it.
• Governance. Board seats, observer rights, and the list of decisions that require investor consent.

In the US: priced equity is standard once a round has a lead and a real size, and valuations sit higher than comparable European companies command.

In Europe:priced rounds are used earlier and more often, typically at lower valuations, and the shareholders’ agreement carries more protective machinery as a matter of course: pre-emption rights on future issues, tag-along so minorities can join an exit, drag-along so a majority can force one. American angels sometimes read a European term sheet as investor-heavy. Mostly it is just the local default.

Convertibles: you decide the price later

Instead of buying shares, the investor puts in money that converts into equity at a future event, usually the next priced round. The valuation argument is deferred to a point where there is more evidence to argue from.

Two terms carry most of the economics:

• The valuation cap.The maximum valuation at which the money converts. It is the early investor’s protection against being squeezed by their own company’s success.
• The discount.A percentage off the next round’s price, compensating for having taken the risk earlier.

In the US: convertible notes and SAFEs are the dominant pre-seed instrument. They are fast, cheap, and familiar to everyone involved, which is most of why they won.

In Europe: convertibles are common but not the default, and terms vary far more between jurisdictions. In the UK specifically, tax relief schemes attach to newly issued ordinary shares, which is why advance subscription agreements, rather than straightforward convertible loan notes, became the standard bridge. Angels there will often decline an instrument that costs them the relief, no matter how founder-friendly it looks.

Whichever you use, understand the mechanics before you sign. You Can’t Negotiate a Term You Can’t Define walks through the vocabulary, and What Should a Founder’s Cap Table Look Like? shows what these choices do to ownership over several rounds.

Four real differences between the two markets

• Valuation. US startups generally price higher than European equivalents at the same stage, which changes the equity an angel gets for the same check.
• Regulation. The US has one broad federal framework. Europe has a different company law, tax regime and investor-relief scheme in every country. Structures that are routine in one market are awkward or unavailable in the next.
• Risk appetite. European angels tend to be more risk-averse, which shows up as lower entry prices and more downside protection rather than as fewer deals.
• Tax incentives.Schemes like SEIS and EIS in the UK, and their equivalents elsewhere, materially change an angel’s after-tax maths, and therefore which instruments they will accept at all.

What to take from this

Founders: offer the instrument your investors can actually use. A SAFE is elegant and worthless to an angel who loses their tax relief by signing it. Ask before you paper the round.

Angels: know which structure you are being offered and what it does in the two cases that matter, the company raising up and the company selling for less than everyone hoped. Then get it reviewed by someone qualified in the relevant jurisdiction. Nothing here is legal or tax advice, and the details differ by country.

The instrument is not the point. Getting the company funded, on terms both sides understand a year later, is.