SlideShare a Scribd company logo

How to Do a Venture Capital Financing

I
I

Recorded 10/19/2023 This webinar is critical for entrepreneurs who will be raising a preferred round in the near future. This webinar is designed to teach you what to expect when your company sells preferred stock in a venture round. During this webinar, veteran Silicon Valley venture capital attorney Alidad Vakili will cover the following topics: · What venture capitalists are looking for when they invest in a company · What makes a company a potential investment for a venture capital fund · Pre-round issues · What makes a good investor and how to find them · How to negotiate a term sheet · The deal documentation · The diligence process · Closing issues · Post-closing issues · Common pitfalls when raising venture capital · And more! About the Speaker Alidad Vakili is an attorney in the Palo Alto office of Foley and Lardner, an international law firm. He regularly represents startup and emerging growth companies at every stage of the company lifecycle—from startup to liquidity. He frequently advises clients on a variety of strategic growth issues including venture capital and private equity financing, private offerings, joint ventures and M&A transactions. His work includes not only advising on major corporate milestones but also significant involvement in day-to-day operations and strategic business issues, such as formation, governance, and commercial agreements.

How to Do a Venture Capital Financing

1 of 32
Download to read offline
How to Do a Venture Capital
Funding
Alidad Vakili, Foley & Lardner LLP
October 19, 2023
Silicon Valley: Idea to IPO
1
Foley & Lardner LLP
DISCLOSURE
These materials have been prepared solely for educational purposes. The information
provided in this presentation does not establish an attorney-client relationship with the
presenter or Foley & Lardner. Specific legal issues should be addressed through
consultation with your own attorney and you should not rely on this presentation or these
materials. Attorney Advertising. Prior results do not guarantee a similar outcome.
Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, please be advised that any
U.S. federal tax advice contained in this communication (including any attachments) is not
intended or written to be used, and cannot be used, for the purpose of (i) avoiding
penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending
to another party any transaction or matter addressed within.
2
Foley & Lardner LLP
AGENDA
 Background
 Overview
 Structural Considerations
 Documentation for Founders and Early Personnel
 Financing Options
 Convertible Securities
 Valuation and Dilution
 Overview of Venture Capital Financings
 Getting Investment Ready
 Preparing for Closing
 Common Pitfalls
 Q&A
3
Foley & Lardner LLP
BACKGROUND
4
 Corporate attorney with a practice focus on Emerging
Growth and Venture Capital.
 I work out of our San Francisco office and have worked
with companies throughout the US and the world.
 I enjoy working with and helping entrepreneurs on
startup adventures from startup to liquidity.
Alidad Vakili
Of Counsel
+1.415.438.6421
avakili@foley.com
Foley & Lardner LLP
Preparation is key
“Success is where preparation and opportunity meet.”
~Bobby Unser
5
OVERVIEW
Foley & Lardner LLP
ABOUT FOLEY
Foley is an AmLaw 50 law firm consistently ranked among top-tier practices.
We provide an unmatched level of client service, innovation, and value—all
tailored to meet your specific needs.
 Providing comprehensive legal services in more than 60 practice areas
 Garnering global recognition for providing exceptional client service and value
 Delivering industry thought leadership, at the forefront of business trends and key legal
developments and regulations
 Investing in understanding your business, markets, and goals
 Offering alternative fee arrangements and budgets to provide cost efficiencies and certainties
6
25 offices across
the United States
and internationally
Founded
in 1842
1,100
Attorneys

Recommended

How to Do a Venture Capital Financing
How to Do a Venture Capital FinancingHow to Do a Venture Capital Financing
How to Do a Venture Capital Financingideatoipo
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsideatoipo
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs   How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs ideatoipo
 
11.24.20 how to Raise Seed Funding for Your Startup: Convertible Notes and ...
11.24.20  how to Raise Seed Funding for Your  Startup: Convertible Notes and ...11.24.20  how to Raise Seed Funding for Your  Startup: Convertible Notes and ...
11.24.20 how to Raise Seed Funding for Your Startup: Convertible Notes and ...ideatoipo
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsideatoipo
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Fundingideatoipo
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Fundingideatoipo
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Fundingideatoipo
 

More Related Content

Similar to How to Do a Venture Capital Financing

How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Fundingideatoipo
 
Fund Formation Introduction
Fund Formation IntroductionFund Formation Introduction
Fund Formation IntroductionCraig Lilly
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Fundingideatoipo
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Fundingideatoipo
 
Early Stage Financing for Startups
Early Stage Financing for StartupsEarly Stage Financing for Startups
Early Stage Financing for Startupsideatoipo
 
How to Do a Venture Capital Financing
How to Do a Venture Capital FinancingHow to Do a Venture Capital Financing
How to Do a Venture Capital Financingideatoipo
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsideatoipo
 
Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...
Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...
Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...Financial Poise
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsideatoipo
 
How to Structure Venture Capital Term Sheets for a Win-Win Deal
 How to Structure Venture Capital Term Sheets for a Win-Win Deal      How to Structure Venture Capital Term Sheets for a Win-Win Deal
How to Structure Venture Capital Term Sheets for a Win-Win Deal ideatoipo
 
How to Position Your Startup for VC Funding
How to Position Your Startup for VC FundingHow to Position Your Startup for VC Funding
How to Position Your Startup for VC Fundingideatoipo
 
GrowLab mentorship session: Startup Seed Financing 101
GrowLab mentorship session: Startup Seed Financing 101GrowLab mentorship session: Startup Seed Financing 101
GrowLab mentorship session: Startup Seed Financing 101GrowLab_Ventures
 
https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...
https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...
https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...ideatoipo
 
Startup Basics: How to Split the Pie, Raise Money and Reward Contributors
Startup Basics: How to Split the Pie, Raise Money and Reward ContributorsStartup Basics: How to Split the Pie, Raise Money and Reward Contributors
Startup Basics: How to Split the Pie, Raise Money and Reward ContributorsRoger Royse
 
Introduction to private equity (2008)
Introduction to private equity (2008)Introduction to private equity (2008)
Introduction to private equity (2008)gooseinoz
 
Hssk dlom dloc presentation to aba 05.11.17
Hssk dlom dloc presentation to aba 05.11.17Hssk dlom dloc presentation to aba 05.11.17
Hssk dlom dloc presentation to aba 05.11.17Beau Butler, ASA, CPA
 
Drexel private equity guest lecture 10 20-2015
Drexel private equity guest lecture 10 20-2015Drexel private equity guest lecture 10 20-2015
Drexel private equity guest lecture 10 20-2015Justin Shuman
 
Understanding Terms in Venture Capital Financings
Understanding Terms in Venture Capital FinancingsUnderstanding Terms in Venture Capital Financings
Understanding Terms in Venture Capital Financingsideatoipo
 
Is Permanent Capital Structure Right for Your Fund?
Is Permanent Capital Structure Right for Your Fund?Is Permanent Capital Structure Right for Your Fund?
Is Permanent Capital Structure Right for Your Fund?Winston & Strawn LLP
 
[PREMONEY 2013] Josh Cook
[PREMONEY 2013] Josh Cook[PREMONEY 2013] Josh Cook
[PREMONEY 2013] Josh Cook500 Startups
 

Similar to How to Do a Venture Capital Financing (20)

How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Funding
 
Fund Formation Introduction
Fund Formation IntroductionFund Formation Introduction
Fund Formation Introduction
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Funding
 
How to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital FundingHow to Position Your Startup for Venture Capital Funding
How to Position Your Startup for Venture Capital Funding
 
Early Stage Financing for Startups
Early Stage Financing for StartupsEarly Stage Financing for Startups
Early Stage Financing for Startups
 
How to Do a Venture Capital Financing
How to Do a Venture Capital FinancingHow to Do a Venture Capital Financing
How to Do a Venture Capital Financing
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
 
Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...
Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...
Opportunity Amidst Crisis - Buying Distressed Assets, Claims, and Securities ...
 
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup: Convertible Notes and SAFEs
 
How to Structure Venture Capital Term Sheets for a Win-Win Deal
 How to Structure Venture Capital Term Sheets for a Win-Win Deal      How to Structure Venture Capital Term Sheets for a Win-Win Deal
How to Structure Venture Capital Term Sheets for a Win-Win Deal
 
How to Position Your Startup for VC Funding
How to Position Your Startup for VC FundingHow to Position Your Startup for VC Funding
How to Position Your Startup for VC Funding
 
GrowLab mentorship session: Startup Seed Financing 101
GrowLab mentorship session: Startup Seed Financing 101GrowLab mentorship session: Startup Seed Financing 101
GrowLab mentorship session: Startup Seed Financing 101
 
https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...
https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...
https://www.hci.org/webcast/recruitment-marketing-how-high-performing-compani...
 
Startup Basics: How to Split the Pie, Raise Money and Reward Contributors
Startup Basics: How to Split the Pie, Raise Money and Reward ContributorsStartup Basics: How to Split the Pie, Raise Money and Reward Contributors
Startup Basics: How to Split the Pie, Raise Money and Reward Contributors
 
Introduction to private equity (2008)
Introduction to private equity (2008)Introduction to private equity (2008)
Introduction to private equity (2008)
 
Hssk dlom dloc presentation to aba 05.11.17
Hssk dlom dloc presentation to aba 05.11.17Hssk dlom dloc presentation to aba 05.11.17
Hssk dlom dloc presentation to aba 05.11.17
 
Drexel private equity guest lecture 10 20-2015
Drexel private equity guest lecture 10 20-2015Drexel private equity guest lecture 10 20-2015
Drexel private equity guest lecture 10 20-2015
 
Understanding Terms in Venture Capital Financings
Understanding Terms in Venture Capital FinancingsUnderstanding Terms in Venture Capital Financings
Understanding Terms in Venture Capital Financings
 
Is Permanent Capital Structure Right for Your Fund?
Is Permanent Capital Structure Right for Your Fund?Is Permanent Capital Structure Right for Your Fund?
Is Permanent Capital Structure Right for Your Fund?
 
[PREMONEY 2013] Josh Cook
[PREMONEY 2013] Josh Cook[PREMONEY 2013] Josh Cook
[PREMONEY 2013] Josh Cook
 

More from ideatoipo

How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Propertyideatoipo
 
How to Recession-Proof Your Job Search in 2024
How to Recession-Proof Your Job Search in 2024How to Recession-Proof Your Job Search in 2024
How to Recession-Proof Your Job Search in 2024ideatoipo
 
H1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & Investors
H1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & InvestorsH1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & Investors
H1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & Investorsideatoipo
 
How to Get Funding for Your Startup by Building Your Corporate Credit
How to Get Funding for Your Startup by Building Your Corporate CreditHow to Get Funding for Your Startup by Building Your Corporate Credit
How to Get Funding for Your Startup by Building Your Corporate Creditideatoipo
 
Getting to Wow! (July 2023).pdf
Getting to Wow! (July 2023).pdfGetting to Wow! (July 2023).pdf
Getting to Wow! (July 2023).pdfideatoipo
 
How to Drive Growth on a Budget
How to Drive Growth on a BudgetHow to Drive Growth on a Budget
How to Drive Growth on a Budgetideatoipo
 
How to Do a Venture Capital Financing
How to Do a Venture Capital FinancingHow to Do a Venture Capital Financing
How to Do a Venture Capital Financingideatoipo
 
How to Raise Seed Funding for Your Startup Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup Convertible Notes and SAFEsideatoipo
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Propertyideatoipo
 
How to Avoid an Intellectual Property Disaster
How to Avoid an Intellectual Property Disaster  How to Avoid an Intellectual Property Disaster
How to Avoid an Intellectual Property Disaster ideatoipo
 
U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and Investors
U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and InvestorsU.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and Investors
U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and Investorsideatoipo
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Propertyideatoipo
 
How to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual AssistantsHow to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual Assistantsideatoipo
 
How to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual AssistantsHow to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual Assistantsideatoipo
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Propertyideatoipo
 
How to Get Ready for Startup Partnership
How to Get Ready for Startup PartnershipHow to Get Ready for Startup Partnership
How to Get Ready for Startup Partnershipideatoipo
 
Startups in a Down Economy: Legal, Business, and Financing Strategies
Startups in a Down Economy: Legal, Business, and Financing StrategiesStartups in a Down Economy: Legal, Business, and Financing Strategies
Startups in a Down Economy: Legal, Business, and Financing Strategiesideatoipo
 
Funding 101 for Tech Entrepreneurs
Funding 101 for Tech EntrepreneursFunding 101 for Tech Entrepreneurs
Funding 101 for Tech Entrepreneursideatoipo
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Propertyideatoipo
 
How to Prepare for Venture Capital Investment PT 2-Venture Capital Terms
How to Prepare for Venture Capital Investment PT 2-Venture Capital TermsHow to Prepare for Venture Capital Investment PT 2-Venture Capital Terms
How to Prepare for Venture Capital Investment PT 2-Venture Capital Termsideatoipo
 

More from ideatoipo (20)

How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Property
 
How to Recession-Proof Your Job Search in 2024
How to Recession-Proof Your Job Search in 2024How to Recession-Proof Your Job Search in 2024
How to Recession-Proof Your Job Search in 2024
 
H1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & Investors
H1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & InvestorsH1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & Investors
H1-B + U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs & Investors
 
How to Get Funding for Your Startup by Building Your Corporate Credit
How to Get Funding for Your Startup by Building Your Corporate CreditHow to Get Funding for Your Startup by Building Your Corporate Credit
How to Get Funding for Your Startup by Building Your Corporate Credit
 
Getting to Wow! (July 2023).pdf
Getting to Wow! (July 2023).pdfGetting to Wow! (July 2023).pdf
Getting to Wow! (July 2023).pdf
 
How to Drive Growth on a Budget
How to Drive Growth on a BudgetHow to Drive Growth on a Budget
How to Drive Growth on a Budget
 
How to Do a Venture Capital Financing
How to Do a Venture Capital FinancingHow to Do a Venture Capital Financing
How to Do a Venture Capital Financing
 
How to Raise Seed Funding for Your Startup Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup Convertible Notes and SAFEsHow to Raise Seed Funding for Your Startup Convertible Notes and SAFEs
How to Raise Seed Funding for Your Startup Convertible Notes and SAFEs
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Property
 
How to Avoid an Intellectual Property Disaster
How to Avoid an Intellectual Property Disaster  How to Avoid an Intellectual Property Disaster
How to Avoid an Intellectual Property Disaster
 
U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and Investors
U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and InvestorsU.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and Investors
U.S. Visa Options for Int'l Tech Professionals, Entrepreneurs, and Investors
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Property
 
How to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual AssistantsHow to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual Assistants
 
How to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual AssistantsHow to Leverage the Power of Virtual Assistants
How to Leverage the Power of Virtual Assistants
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Property
 
How to Get Ready for Startup Partnership
How to Get Ready for Startup PartnershipHow to Get Ready for Startup Partnership
How to Get Ready for Startup Partnership
 
Startups in a Down Economy: Legal, Business, and Financing Strategies
Startups in a Down Economy: Legal, Business, and Financing StrategiesStartups in a Down Economy: Legal, Business, and Financing Strategies
Startups in a Down Economy: Legal, Business, and Financing Strategies
 
Funding 101 for Tech Entrepreneurs
Funding 101 for Tech EntrepreneursFunding 101 for Tech Entrepreneurs
Funding 101 for Tech Entrepreneurs
 
How to Protect Your Intellectual Property
How to Protect Your Intellectual PropertyHow to Protect Your Intellectual Property
How to Protect Your Intellectual Property
 
How to Prepare for Venture Capital Investment PT 2-Venture Capital Terms
How to Prepare for Venture Capital Investment PT 2-Venture Capital TermsHow to Prepare for Venture Capital Investment PT 2-Venture Capital Terms
How to Prepare for Venture Capital Investment PT 2-Venture Capital Terms
 

Recently uploaded

publicpolicy-130621235359-phpapp02 2.pdf
publicpolicy-130621235359-phpapp02 2.pdfpublicpolicy-130621235359-phpapp02 2.pdf
publicpolicy-130621235359-phpapp02 2.pdfmmople
 
Eni: fourth quarter and full year 2023 results
Eni: fourth quarter and full year 2023 resultsEni: fourth quarter and full year 2023 results
Eni: fourth quarter and full year 2023 resultsEni
 
Sustainability Roadmap Infographics_final.pdf
Sustainability Roadmap Infographics_final.pdfSustainability Roadmap Infographics_final.pdf
Sustainability Roadmap Infographics_final.pdfJai Babu
 
HPM Hindustan M-45 (Fungicides) Presentation
HPM Hindustan M-45 (Fungicides) PresentationHPM Hindustan M-45 (Fungicides) Presentation
HPM Hindustan M-45 (Fungicides) PresentationHpm India
 
NADA 2024: Selling Cars on TikTok
NADA 2024: Selling Cars on TikTokNADA 2024: Selling Cars on TikTok
NADA 2024: Selling Cars on TikTokSean Bradley
 
Database Set Up Basics Bloomerang Academy
Database Set Up Basics Bloomerang AcademyDatabase Set Up Basics Bloomerang Academy
Database Set Up Basics Bloomerang AcademyBloomerang
 
PDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / Techcrunch
PDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / TechcrunchPDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / Techcrunch
PDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / TechcrunchHajeJanKamps
 
Database Management.pdf
Database Management.pdfDatabase Management.pdf
Database Management.pdfBloomerang
 
BusinessWritingExamplesFeb2024Litt.pdf
BusinessWritingExamplesFeb2024Litt.pdfBusinessWritingExamplesFeb2024Litt.pdf
BusinessWritingExamplesFeb2024Litt.pdfSteven Litt
 
KJPoppe DG AGRI Certification as a tool to reduce administrative burdens
KJPoppe DG AGRI Certification as a tool to reduce administrative burdensKJPoppe DG AGRI Certification as a tool to reduce administrative burdens
KJPoppe DG AGRI Certification as a tool to reduce administrative burdensKrijn Poppe
 
Communications Trends for Fundraising Success in 2024.pdf
Communications Trends for Fundraising Success in 2024.pdfCommunications Trends for Fundraising Success in 2024.pdf
Communications Trends for Fundraising Success in 2024.pdfBloomerang
 
Deep Dive Petrobras 2024 (Day 1).pdf
Deep Dive Petrobras 2024 (Day 1).pdfDeep Dive Petrobras 2024 (Day 1).pdf
Deep Dive Petrobras 2024 (Day 1).pdfsteevesroy1
 
Ultimate Guide to Choosing the Best Boom Barrier
Ultimate Guide to Choosing the Best Boom BarrierUltimate Guide to Choosing the Best Boom Barrier
Ultimate Guide to Choosing the Best Boom Barriernovusapl
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access
 
UPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptx
UPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptxUPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptx
UPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptxJenniferJenkins94
 
Proof Strategies CanTrust Index 2024
Proof Strategies CanTrust Index 2024Proof Strategies CanTrust Index 2024
Proof Strategies CanTrust Index 2024Proof
 

Recently uploaded (20)

publicpolicy-130621235359-phpapp02 2.pdf
publicpolicy-130621235359-phpapp02 2.pdfpublicpolicy-130621235359-phpapp02 2.pdf
publicpolicy-130621235359-phpapp02 2.pdf
 
Authentically Social by Corey Perlman (MyBOD)
Authentically Social by Corey Perlman (MyBOD)Authentically Social by Corey Perlman (MyBOD)
Authentically Social by Corey Perlman (MyBOD)
 
Bryan_Cassady - AI Powered Innovation.pdf
Bryan_Cassady - AI Powered Innovation.pdfBryan_Cassady - AI Powered Innovation.pdf
Bryan_Cassady - AI Powered Innovation.pdf
 
Eni: fourth quarter and full year 2023 results
Eni: fourth quarter and full year 2023 resultsEni: fourth quarter and full year 2023 results
Eni: fourth quarter and full year 2023 results
 
Sustainability Roadmap Infographics_final.pdf
Sustainability Roadmap Infographics_final.pdfSustainability Roadmap Infographics_final.pdf
Sustainability Roadmap Infographics_final.pdf
 
HPM Hindustan M-45 (Fungicides) Presentation
HPM Hindustan M-45 (Fungicides) PresentationHPM Hindustan M-45 (Fungicides) Presentation
HPM Hindustan M-45 (Fungicides) Presentation
 
NADA 2024: Selling Cars on TikTok
NADA 2024: Selling Cars on TikTokNADA 2024: Selling Cars on TikTok
NADA 2024: Selling Cars on TikTok
 
Database Set Up Basics Bloomerang Academy
Database Set Up Basics Bloomerang AcademyDatabase Set Up Basics Bloomerang Academy
Database Set Up Basics Bloomerang Academy
 
PDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / Techcrunch
PDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / TechcrunchPDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / Techcrunch
PDT 84 - 16m - Series A - Equals for Pitch Deck Teardown / Techcrunch
 
Database Management.pdf
Database Management.pdfDatabase Management.pdf
Database Management.pdf
 
BusinessWritingExamplesFeb2024Litt.pdf
BusinessWritingExamplesFeb2024Litt.pdfBusinessWritingExamplesFeb2024Litt.pdf
BusinessWritingExamplesFeb2024Litt.pdf
 
Pan Dhoni - Modernizing Data And Analytics using AI.pdf
Pan Dhoni - Modernizing Data And Analytics using AI.pdfPan Dhoni - Modernizing Data And Analytics using AI.pdf
Pan Dhoni - Modernizing Data And Analytics using AI.pdf
 
Charlie Caldwell - Living Smart with AI.pdf
Charlie Caldwell - Living Smart with AI.pdfCharlie Caldwell - Living Smart with AI.pdf
Charlie Caldwell - Living Smart with AI.pdf
 
KJPoppe DG AGRI Certification as a tool to reduce administrative burdens
KJPoppe DG AGRI Certification as a tool to reduce administrative burdensKJPoppe DG AGRI Certification as a tool to reduce administrative burdens
KJPoppe DG AGRI Certification as a tool to reduce administrative burdens
 
Communications Trends for Fundraising Success in 2024.pdf
Communications Trends for Fundraising Success in 2024.pdfCommunications Trends for Fundraising Success in 2024.pdf
Communications Trends for Fundraising Success in 2024.pdf
 
Deep Dive Petrobras 2024 (Day 1).pdf
Deep Dive Petrobras 2024 (Day 1).pdfDeep Dive Petrobras 2024 (Day 1).pdf
Deep Dive Petrobras 2024 (Day 1).pdf
 
Ultimate Guide to Choosing the Best Boom Barrier
Ultimate Guide to Choosing the Best Boom BarrierUltimate Guide to Choosing the Best Boom Barrier
Ultimate Guide to Choosing the Best Boom Barrier
 
Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024Borderless Access - Global Panel book-unlock 2024
Borderless Access - Global Panel book-unlock 2024
 
UPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptx
UPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptxUPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptx
UPDATEDJenkins_Jennifer_EBS_PB1_2023-July.pptx
 
Proof Strategies CanTrust Index 2024
Proof Strategies CanTrust Index 2024Proof Strategies CanTrust Index 2024
Proof Strategies CanTrust Index 2024
 

How to Do a Venture Capital Financing

  • 1. How to Do a Venture Capital Funding Alidad Vakili, Foley & Lardner LLP October 19, 2023 Silicon Valley: Idea to IPO 1
  • 2. Foley & Lardner LLP DISCLOSURE These materials have been prepared solely for educational purposes. The information provided in this presentation does not establish an attorney-client relationship with the presenter or Foley & Lardner. Specific legal issues should be addressed through consultation with your own attorney and you should not rely on this presentation or these materials. Attorney Advertising. Prior results do not guarantee a similar outcome. Circular 230 Disclosure To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed within. 2
  • 3. Foley & Lardner LLP AGENDA  Background  Overview  Structural Considerations  Documentation for Founders and Early Personnel  Financing Options  Convertible Securities  Valuation and Dilution  Overview of Venture Capital Financings  Getting Investment Ready  Preparing for Closing  Common Pitfalls  Q&A 3
  • 4. Foley & Lardner LLP BACKGROUND 4  Corporate attorney with a practice focus on Emerging Growth and Venture Capital.  I work out of our San Francisco office and have worked with companies throughout the US and the world.  I enjoy working with and helping entrepreneurs on startup adventures from startup to liquidity. Alidad Vakili Of Counsel +1.415.438.6421 avakili@foley.com
  • 5. Foley & Lardner LLP Preparation is key “Success is where preparation and opportunity meet.” ~Bobby Unser 5 OVERVIEW
  • 6. Foley & Lardner LLP ABOUT FOLEY Foley is an AmLaw 50 law firm consistently ranked among top-tier practices. We provide an unmatched level of client service, innovation, and value—all tailored to meet your specific needs.  Providing comprehensive legal services in more than 60 practice areas  Garnering global recognition for providing exceptional client service and value  Delivering industry thought leadership, at the forefront of business trends and key legal developments and regulations  Investing in understanding your business, markets, and goals  Offering alternative fee arrangements and budgets to provide cost efficiencies and certainties 6 25 offices across the United States and internationally Founded in 1842 1,100 Attorneys
  • 7. Foley & Lardner LLP WHAT WE DO Foley comprehensively and effectively addresses legal and business matters across a broad range of industries and four primary sectors that align with our clients and strengths. 7  Antitrust  Business Litigation and Dispute Resolution  Commercial Transactions and Business Counseling  Consumer Law, Finance, and Class Action  Corporate Governance  Cybersecurity  Environmental  Employee Benefits and Executive Compensation  Export Controls and National Security  Government Enforcement Defense and Investigations  Investment Management  IP Asset Management  IP Litigation  IP Procurement, Management, and Counseling  Labor and Employment  Mergers and Acquisitions  Patent Office Trials  Private Equity and Venture Capital  Securities and Corporate Finance  Taxation  Trademark, Copyright, and Advertising Counseling
  • 8. Foley & Lardner LLP STRUCTURAL CONSIDERATIONS Key Issues  Entity type – C Corporation  Jurisdiction - Delaware 8
  • 9. Foley & Lardner LLP DOCUMENTATION FOR FOUNDERS AND EARLY PERSONNEL  Proper Documentation is Key  Confidentiality  Intellectual Property Assignments (IP Assignments, CIIAAs (aka PIIAAs))  Vesting of Securities  Stock Options  Restricted Stock  Transfer Restrictions  Shareholder Agreements  Restrictions in Bylaws  Stock Purchase Agreements  Other agreements (e.g., side letters) 9
  • 10. Foley & Lardner LLP FINANCING OPTIONS  Convertible Debt  Convertible notes (also sometimes referred to as bridge notes)  Convertible Equity  SAFEs (Simple Agreement for Future Equity)  Equity / (priced equity or venture rounds)  Series Seed, Series A, Series B, Series C, … Note: There are other financing options that are beyond the scope of this presentation (e.g., grants, loans, etc.) 10
  • 11. Foley & Lardner LLP CONVERTIBLE SECURITIES  Convert to future equity securities at a negotiated discount to a future qualified equity financing  Pros: • Avoids valuation • Easier to document • less expensive  Cons (at least typically for Convertible Notes): • This is debt and may be required to be paid at some point • Extra liquidation preference (i.e., creditors get paid first) 11
  • 12. Foley & Lardner LLP CONVERTIBLE SECURITIES  Maturity*  Interest Rate*  Conversion Terms  Amendment Terms (e.g., majority in interest to amend)  Remaining Terms  Not typically subject to a lot of negotiation *For Convertible Notes, not SAFEs 12
  • 13. Foley & Lardner LLP CONVERTIBLE SECURITIES • Mandatory conversion at a discount of price paid in Next Qualified Financing  Series Seed/Series A needs to meet the definition of a “Qualified Financing” • Equity financing • Minimum size (e.g., “$2,000,000”)  Discount should be reasonable (20-25% typical)  Conversion Price Cap (aka valuation cap)  Conversion upon a change of control/sale/liquidation  Optional maturity conversion 13
  • 14. Foley & Lardner LLP CAPITALIZATION To Give or not to Give? • Striking the right balance when allocating equity • Capitalization  Think backwards when planning • Ownership • Control • Dilution (plan for it – it’ll happen) • Incentivize your team  Proper documentation • Vesting • Repurchase rights 14
  • 15. Foley & Lardner LLP FOUNDATIONAL BASICS – VALUATION AND DILUTION  Pre-money valuation – the value of the company before the next round of investment.  Post-money valuation – the value of the company after the round of investment (post-money valuation + investment = post-money valuation).  Issued and outstanding basis – all stock issued and outstanding.  Fully-diluted basis – all stock issued and outstanding, plus all securities that can be converted to common, plus (typically) the shares reserved for equity compensation. 15
  • 16. Foley & Lardner LLP FOUNDATIONAL BASICS – VALUATION AND DILUTION • Simple Example (not factoring in the option pool or any other convertible equity)  Pre-money $10,000,000 • 10,000,000 shares split among three equal founders • Founder A = 3,333,334 shares or 33.33% (rounded down to 33.33%) • Founder B = 3,333,333 shares or 33.33% • Founder C = 3,333,333 shares or 33.33% • Investment $3,000,000 at $1.00/share ($10,000,000 pre-money/10,000,000 outstanding shares) (Post-money is $13,000,000) • Founder A = 3,333,334 shares or ~25% with a value of $3,333,334 • 3,333,333/13,000,000 = 0.2564 or ~25% • New Investor = 3,000,000 shares or ~23% with a value of $3,000,000 • 3,000,000/13,000,000 = 0.2308 or ~23% 16
  • 17. Foley & Lardner LLP FOUNDATIONAL BASICS – CONT. 17 Sample 1 Premoney Valuation $10,000,000.00 Company Capitalization 10,000,000 Investment $3,000,000.00 Postmoney Valuation $13,000,000.00 Price Per Share $1.00 Premoney Postmoney Shareholders No of Shares Ownership Shareholders No of Shares Ownership Founder A 3,333,334 33.33% Founder 1 3,333,334 25.64% Founder B 3,333,333 33.33% Founder 2 3,333,333 25.64% Founder C 3,333,333 33.33% Founder 3 3,333,333 25.64% New Investor 3,000,000 23.08% Total 10,000,000 100.00% 13,000,000 100.00%
  • 18. Foley & Lardner LLP FOUNDATIONAL BASICS – EXAMPLE CONT.  Basic Examples with Convertible Securities  If there had been a $450,000 convertible security with 25% discount only, holder would have received 600,000 shadow shares ($450,000/.75=600,000).  If there had been a $450,000 convertible security with $5MM cap only, holder would have received 900,000 shares. $450,000/(5,000,000/10,000,000). 18
  • 19. Foley & Lardner LLP FOUNDATIONAL BASICS – EXAMPLE CONT. 19 Sample 2 Convertible Note Investment with a 25% Discount Premoney Valuation $10,000,000.00 Company Capitalization 10,000,000 Investment $450,000.00 Postmonty Valuation $10,450,000.00 Price Per Share $1.00 Discount 25% Price Per Share (with Discount) $0.75 Premoney Postmoney Shareholders No of Shares Ownership Shareholders No of Shares Ownership Founder A 3,333,334 33.33% Founder 1 3,333,334 25.64% Founder B 3,333,333 33.33% Founder 2 3,333,333 25.64% Founder C 3,333,333 33.33% Founder 3 3,333,333 25.64% New Investor 600,000 4.62% Total 10,000,000 100.00% 10,600,000 81.54% Note: Without the 25% discount, the New Investor would have received 450,000 shares instead of 600,000 shares (450,000/1.00 = 450,000) vs. (450,000/.75 = 600,000).
  • 20. Foley & Lardner LLP FOUNDATIONAL BASICS – EXAMPLE CONT. 20 Sample 3 Premoney Valuation $10,000,000.0 0 Company Capitalization 10,000,000 Investment $450,000.00 Postmonty Valuation $10,450,000.0 0 Price Per Share $1.00 Discount 25% Valuation Cap $5,000,000.00 Price Per Share (with Discount) $0.75 Price Per Share (with Valuation Cap) $0.50 Shareholders No of Shares Ownership Shareholders No of Shares Ownership Founder A 3,333,334 33.33% Founder 1 3,333,334 25.64% Founder B 3,333,333 33.33% Founder 2 3,333,333 25.64% Founder C 3,333,333 33.33% Founder 3 3,333,333 25.64% New Investor 900,000 6.92% Total 10,000,000 100.00% 10,900,000 83.85% Note: Because the valuation cap would result in a larger number of shares for the investor, the valuation cap is used instead of the 25% discount (450,000/(5,000,000/10,000,000).
  • 21. Foley & Lardner LLP OVERVIEW OF VENTURE FINANCINGS • Have a credible business plan  Understanding the Market – Market fit – Customer  Profitability – Show investors how they get their return on investment (ROI)  Scalability  Understanding business financials  Team investors can believe in  Milestones • Perfect your pitch 21
  • 22. Foley & Lardner LLP OVERVIEW OF VENTURE FINANCINGS • Run a Systematic Process  Have more than enough capital from your earlier seed rounds  Connect with the right Investors  Understand your ideal term sheet  Prepare for thorough diligence  Have good corporate hygiene  Be prepared for cleanup 22
  • 23. Foley & Lardner LLP OVERVIEW OF VENTURE CAPITAL FINANCINGS Understand your ideal term sheet:  How much of the company is being sold  Dividends  Liquidation preferences  Voting Rights  Protective provisions  Optional and Mandatory Conversion  Antidilution protection  Vesting for founders  Documentation  Attorneys Fees  No Shop and Confidentiality Provisions  Whether investors will get a board seat or observer rights 23
  • 24. Foley & Lardner LLP OVERVIEW OF VENTURE CAPITAL FINANCINGS  Term Sheet  Roadmap for transaction  Diligence process  Documentation Process  NVCA - https://nvca.org/model-legal-documents/  Series Seed - https://www.seriesseed.com  Proprietary forms  Pre-Closing  Closing  Post-Closing Items 24
  • 25. Foley & Lardner LLP OVERVIEW OF VENTURE CAPITAL FINANCINGS  Documentation Involved in a Typical VC Financing Main Financing Documents  Certificate of incorporation  Stock purchase agreement + Disclosure Schedule  Investor rights agreement  Right of first refusal and co-sale agreement  Voting agreement Ancillary Documents  Board consent  Stockholder consent  Other consents (if required)  Side letters 25
  • 26. Foley & Lardner LLP OVERVIEW OF VENTURE CAPITAL FINANCINGS  Diligence  Critical part of financing process and transaction  Start early  Get organized  Review reps and warranties from the Stock Purchase Agreement  Start on the Disclosure Schedule early in process  Know your agreements  Cap table tie out  Know what consents and approvals are needed  Disclosure  Know what to disclose 26
  • 27. Foley & Lardner LLP GETTING INVESTMENT READY  Clean company records  Make sure you have the proper documentation in order  Make sure you have documents to support your cap table for a cap table tie out  Organize documents and information in an investor friendly way  Set up a data room and keep it updated  Create and maintain information that will be needed for investor’s diligence  Become familiar with the NVCA model financing agreements  NVCA recently updated their forms – review them 27
  • 28. Foley & Lardner LLP ALWAYS BE CLOSING (ABC)  Do your homework  Get your Company’s house in order BEFORE you talk to investors  Cap table  Proforma  Data room  Do your own diligence on potential investors  Prepare for your closing from Day 1  Create your team (internal and external)  Set a reasonable timeline  Organize and divide tasks appropriately 28
  • 29. Foley & Lardner LLP COMMON PITFALLS  Not setting up the entity properly (type of entity, jurisdiction)  Not having proper documentation for founders, employees, consultants  Failure to own the technology/IP that is critical to the business  Not having proper vesting for equity grants  Undocumented stakes in the company  Non-Compliance with Securities Laws  Not managing the company’s cap table  Not having clean corporate records and an organized data room  Thinking that there are “standard” or “boilerplate” terms  Finders  Side Letters  Failure to obtain proper corporate authorization  Risk of employment-law issues  Tax issues – e.g., federal, state, local 29
  • 30. Foley & Lardner LLP PARTING THOUGHTS… Do your homework Prepare in advance Dream backwards 30
  • 32. Foley & Lardner LLP About Foley Foley & Lardner LLP is a preeminent law firm that stands at the nexus of the energy, health care and life sciences, innovative technology, and manufacturing sectors. We look beyond the law to focus on the constantly evolving demands facing our clients and act as trusted business advisors to deliver creative, practical, and effective solutions. Our 1,100 lawyers across 25 offices worldwide partner on the full range of engagements from corporate counsel to IP work and litigation support, providing our clients with a one-team solution to all their needs. For nearly two centuries, Foley has maintained its commitment to the highest level of innovative legal services and to the stewardship of our people, firm, clients, and the communities we serve. ATTORNEY ADVERTISEMENT. The contents of this document, current at the date of publication, are for reference purposes only and do not constitute legal advice. Where previous cases are included, prior results do not guarantee a similar outcome. Images of people may not be Foley personnel. © 2023 Foley & Lardner LLP FOLEY.COM 32