Term Sheet 101

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  • 1. 11 Term Shit ee
  • 2. 11 i) Some tips ii) Economics iii) Control iv) BS
  • 3. 11 Tips i) Pee or get off the pot ii) Know what you want iii) Have your materials ready iv) Be ready for due diligence v) Find the right investors vi) Close!
  • 4. 11 Price Pre-money vs. Post-money 500k @ 2M pre-money = 20% 500k @ 2M post-money = 25%
  • 5. 11 Option pool Case: 20% option pool case at 2M pre-money Founders’ pre-money valuation = 1.6M
  • 6. 11 Liquidation preference i) Full participation vs ii) Capped participation vs iii) No participation
  • 7. 11 Liquidation preference 500k at 2M pre-money – 20% i) 2x not participating Exit 1: 5M: Investors - 1M / F6S – 4M Exit 2: 2M: Investors – 1M / F6S – 1M ii) 2x full participating Exit 1: 5M: Investors - 1M / F6S – 4M Exit 2: 1M: Investors – 1.2M / F6S – 0.8M
  • 8. 11 Pay-to-Play Automatically convert Preferred stock to Common stock
  • 9. 11 Vesting i) Cliff ii) Vesting period iii) Merger – single vs. double trigger
  • 10. 11 Other i) Employee pool ii) Antidilution
  • 11. 11 Board Standard composition of 5 person board: 2 investors 2 founders 1 independent
  • 12. 11 Protection rights i) Change of terms of stock ii) Issue new stock iii) Sell company iv) Change bylaws v) Change board vi) Pay dividends vii) Borrow money
  • 13. 11 Drags and Tags i) Drag along ii) Tag along (explained)
  • 14. 11 Q&A