NEF: Valuation and What Counts

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NEF: Valuation and What Counts
10-15-09

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NEF: Valuation and What Counts

  1. 1. Term Sheet<br />October 15, 2009<br />What am I worth?<br />
  2. 2. Key elements of a Terms Sheet<br />Valuation<br />Liquidation preference<br />Anti-dilution protection<br />Dividends / Redemption rights<br />Board Composition / Governance<br />Participation rights <br />Redemption rights<br />Protective provisions <br />No shop / NDA / Confidentiality <br />9/17/2009<br />New Enterprise Forum<br />2<br />
  3. 3. Overview<br />9/17/2009<br />New Enterprise Forum<br />3<br /> What is a “terms sheet”:<br />What every early stage company dreams of <br />A culmination of a 6 - 9 month investor due-diligence process <br /> A 10-12 page document with proposed investment terms <br />It is not an LOI (letter of intent) <br />Key Concerns for company:<br />Control<br />Valuation & Dilution of ownership<br />Value- add<br />Key Concerns for investors:<br />Risk, risk, risk…Return<br />Management Team<br />Governance: When things go wrong….<br />
  4. 4. Corporate Structure<br />10/15/2009<br />New Enterprise Forum<br />4<br />LLC <br />C – Corp <br />S – Corp<br />State of Incorporation <br />
  5. 5. Investors<br />10/15/2009<br />New Enterprise Forum<br />5<br />Type <br />Individual (Angel)<br />LLC (Group of individuals)<br />VC Firm <br />
  6. 6. Class of Stock<br />10/15/2009<br />New Enterprise Forum<br />6<br />Series A Preferred <br />Series B Preferred <br />Common Stock <br />Warrants <br />Options <br />
  7. 7. Amount Raised<br />10/15/2009<br />New Enterprise Forum<br />7<br />Pre-Money – What is the company worth today <br /> (Based on realistic projections) <br />Including $__ from the conversion of principal and interest on bridge notes? How will you clean up debt? <br />Investment can be structured as a staged pay-in (tranches), with subsequent installments to be invested if the Company has met certain milestones. <br />Plan ahead for future rounds. <br />
  8. 8. Capitalization<br />10/15/2009<br />New Enterprise Forum<br />8<br />Price Per Share <br />Pre-Money Valuation <br />Company’s capital structure before and after Closing <br />
  9. 9. Liquidation Preference<br />10/15/2009<br />New Enterprise Forum<br />9<br />First pay Original Purchase Price plus dividends and/or a multiple of original price on each share of Series A Preferred Stock. <br />Balance of any proceeds shall be distributed to holders of Common Stock. <br /> Participating vs. Non-participating preferred <br />Mandatory Conversion automatically occurs in the event of<br />IPO at price X times Original Purchase price <br />Written consent of holder of __% of Preferred <br />
  10. 10. Dividends <br />10/15/2009<br />New Enterprise Forum<br />10<br />Non-cumulative dividends on Series A Preferred <br />Rate ___% <br />When and if declared by the Board <br />
  11. 11. Anti-dilution Provisions<br />10/15/2009<br />New Enterprise Forum<br />11<br />In the event Company issues securities at a price less than the current Preferred price, such price shall be adjusted in accordance with an agreed to formula <br />Weighted average <br />Full-ratchet <br />No price-based anti-dilution adjustment <br />
  12. 12. Term Sheet<br />October 15, 2009<br />www.newenterpriseforum.org<br />

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