Term Sheet 101
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Transcript of Term Sheet 101
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Term Shitee
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i) Some tipsii) Economicsiii) Controliv) BS
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Tips
i) Pee or get off the potii) Know what you wantiii) Have your materials readyiv) Be ready for due diligencev) Find the right investorsvi) Close!
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Price
Pre-money vs. Post-money
500k @ 2M pre-money = 20%500k @ 2M post-money = 25%
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Option pool
Case:20% option pool case at 2M pre-money
Founders’ pre-money valuation = 1.6M
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Liquidation preference
i) Full participation vsii) Capped participation vsiii) No participation
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Liquidation preference
500k at 2M pre-money – 20%i) 2x not participatingExit 1: 5M: Investors - 1M / F6S – 4MExit 2: 2M: Investors – 1M / F6S – 1M
ii) 2x full participatingExit 1: 5M: Investors - 1M / F6S – 4MExit 2: 1M: Investors – 1.2M / F6S – 0.8M
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Pay-to-Play
Automatically convert Preferred stock to Common stock
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Vesting
i) Cliffii) Vesting periodiii) Merger – single vs. double
trigger
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Other
i) Employee poolii) Antidilution
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Board
Standard composition of 5 person board:2 investors2 founders1 independent
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Protection rights
i) Change of terms of stockii) Issue new stockiii) Sell companyiv) Change bylawsv) Change boardvi) Pay dividendsvii) Borrow money
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Drags and Tags
i) Drag alongii) Tag along (explained)
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Q&A