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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.

Published in: Business, Economy & Finance
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  • A simple brief workshop on understanding the term sheet of a funding deal. For more information please see our website www.ltaylorsolutions.com where you may also contact us directly or email info@ltaylorsolutions.com with any questions or if you would like to have an informal chat about the services we offer.
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Venture Capital - Term Sheet Workshop

  1. 1. Raising Venture CapitalWorkshop<br />Understanding Term Sheets<br />
  2. 2. What are They?<br />What are term sheets used for?<br />8 October, 2009<br />2<br />www.ltaylorsolutions.com<br />
  3. 3. Term Sheet Purposes<br />Shows the Investor’s view of the business<br />Clearly defines the investor’s expectations<br />The ultimate potential value of the business<br />Identifies the areas of possible negotiation<br />8 October, 2009<br />www.ltaylorsolutions.com<br />3<br />
  4. 4. Vocabulary<br />Let’s look at the essential vocabulary on a term sheet<br />8 October, 2009<br />www.ltaylorsolutions.com<br />4<br />
  5. 5. Essential Vocabulary<br />Instrument<br />Type of Shares (Convertible, Preference etc)<br />Terms & Conditions placed on shares<br />Vesting Provisions<br />How total investment will be paid<br />Defines management stock options if any<br />Decision Rights<br />Power of veto<br />8 October, 2009<br />www.ltaylorsolutions.com<br />5<br />
  6. 6. Other Essential Vocabulary<br />Conversion Terms<br />In what way are the preferred shares to be converted<br />Option Pool<br />Total amount of common shares to be put in place for stock option remuneration<br />Anti-Dilution<br />An ability to have investment ‘re-priced’ if the company misses targets and subsequently has a lower valuation<br />8 October, 2009<br />www.ltaylorsolutions.com<br />6<br />
  7. 7. Examples<br />Let’s look at some typical examples<br />8 October, 2009<br />www.ltaylorsolutions.com<br />7<br />
  8. 8. What does this tell us?<br />The VC fund believes:<br /><ul><li>Company will reach more than €100m valuation within 2 years
  9. 9. Company will make it to an IPO
  10. 10. Well-known management will come to work there for stock options
  11. 11. VC fund does not request anti-dilution as the warrant or option for an extra 25% reduces this risk.</li></ul>8 October, 2009<br />www.ltaylorsolutions.com<br />8<br />
  12. 12. What does this tell us?<br />The small VC fund believes:<br /><ul><li>VC is not sure that the company will reach a future higher valuation
  13. 13. VC will feel assured by an ability to negotiate a preferential deal via Anti-dilution clause should the company miss their targets
  14. 14. Power of Veto will help VC to manage the future of the business from the inside
  15. 15. The primary concern for this VC is an ability to follow his investment in future rounds </li></ul>8 October, 2009<br />www.ltaylorsolutions.com<br />9<br />
  16. 16. Exercises<br />Let’s look at the deal<br />8 October, 2009<br />www.ltaylorsolutions.com<br />10<br />
  17. 17. The task<br />Look at the following table of ‘three offers’<br />Decide what each VC…<br />Believes about the company’s future<br />What they believe the risks are<br />What are they trying to achieve from the deal<br />What would they be willing to negotiate on<br />Decide which is the best offer for the company’s future & explain why<br />8 October, 2009<br />www.ltaylorsolutions.com<br />11<br />
  18. 18. Three offers<br />8 October, 2009<br />www.ltaylorsolutions.com<br />12<br />
  19. 19. 8 October, 2009<br />www.ltaylorsolutions.com<br />13<br />Please see www.ltaylorsolutions.com for further information<br />

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