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Venture Capital - Term Sheet Workshop
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Venture Capital - Term Sheet Workshop

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Understand what a term sheet is for, how to read it & more importantly how to decipher the underlying message of what the VC actually thinks of your company's future.

Understand what a term sheet is for, how to read it & more importantly how to decipher the underlying message of what the VC actually thinks of your company's future.

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    Venture Capital - Term Sheet Workshop Venture Capital - Term Sheet Workshop Presentation Transcript

    • Raising Venture CapitalWorkshop
      Understanding Term Sheets
    • What are They?
      What are term sheets used for?
      8 October, 2009
      2
      www.ltaylorsolutions.com
    • Term Sheet Purposes
      Shows the Investor’s view of the business
      Clearly defines the investor’s expectations
      The ultimate potential value of the business
      Identifies the areas of possible negotiation
      8 October, 2009
      www.ltaylorsolutions.com
      3
    • Vocabulary
      Let’s look at the essential vocabulary on a term sheet
      8 October, 2009
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      4
    • Essential Vocabulary
      Instrument
      Type of Shares (Convertible, Preference etc)
      Terms & Conditions placed on shares
      Vesting Provisions
      How total investment will be paid
      Defines management stock options if any
      Decision Rights
      Power of veto
      8 October, 2009
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      5
    • Other Essential Vocabulary
      Conversion Terms
      In what way are the preferred shares to be converted
      Option Pool
      Total amount of common shares to be put in place for stock option remuneration
      Anti-Dilution
      An ability to have investment ‘re-priced’ if the company misses targets and subsequently has a lower valuation
      8 October, 2009
      www.ltaylorsolutions.com
      6
    • Examples
      Let’s look at some typical examples
      8 October, 2009
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      7
    • What does this tell us?
      The VC fund believes:
      • Company will reach more than €100m valuation within 2 years
      • Company will make it to an IPO
      • Well-known management will come to work there for stock options
      • VC fund does not request anti-dilution as the warrant or option for an extra 25% reduces this risk.
      8 October, 2009
      www.ltaylorsolutions.com
      8
    • What does this tell us?
      The small VC fund believes:
      • VC is not sure that the company will reach a future higher valuation
      • VC will feel assured by an ability to negotiate a preferential deal via Anti-dilution clause should the company miss their targets
      • Power of Veto will help VC to manage the future of the business from the inside
      • The primary concern for this VC is an ability to follow his investment in future rounds
      8 October, 2009
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      9
    • Exercises
      Let’s look at the deal
      8 October, 2009
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      10
    • The task
      Look at the following table of ‘three offers’
      Decide what each VC…
      Believes about the company’s future
      What they believe the risks are
      What are they trying to achieve from the deal
      What would they be willing to negotiate on
      Decide which is the best offer for the company’s future & explain why
      8 October, 2009
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      11
    • Three offers
      8 October, 2009
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      12
    • 8 October, 2009
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      13
      Please see www.ltaylorsolutions.com for further information