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Conquering the term sheet: Everything You Need to Know About Deal Terms for Angel Investing

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Join us for a Q&A session with OurCrowd Partners, Zack Miller (Investor Community) and David Stark (Investments), about the fundamentals of deal terms in startup investing. Learn how professional investors analyze and construct terms and conditions for their investments.

Conquering the Term Sheet: Everything you need to know about deal terms

In this 30-minute webinar, you will:

Understand the basics of deal terms, from full ratchet to anti-dilution
Get an insider’s view of crafting deal terms in startup investing
Learn what to look for in a term sheet from seed stage to pre-IPO

Published in: Business
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Conquering the term sheet: Everything You Need to Know About Deal Terms for Angel Investing

  1. 1. Conquering the Term Sheet: Everything You Need to Know About Deal Terms
  2. 2. David Stark Partner, OurCrowd @starkupnation Zack Miller Partner, OurCrowd @newrulesinvest
  3. 3. OurCrowd Leading equity crowdfunding platform with 8000+ investors from over 100 countries
  4. 4. Investment Checklist 1. Great team 2. Market 3. Easy to understand 4. Traction 5. Sponsorship 6. Good deal
  5. 5. A good (investment) deal = risk-adjusted return ample upside downside protection alignment of interests
  6. 6. The Naked Term Sheet Crafting and Reading Deal Terms
  7. 7. “A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.” Term Sheet
  8. 8. Lesson 1 The Naked Term Sheet Valuation Liquidation preferences ESOP Preemptive rights Anti-dilution protection Board representation Control provisions Convertible Notes Discount Cap Interest Maturity Conversion Mechanics Lesson 1 - Equity Lesson 3 (May 27) Lesson 2 (May 20)
  9. 9. Deal term triumvirate Valuation ESOP Preferences
  10. 10. 1.) Premoney + Investment Amt = Postmoney 2.) Investment amount/postmoney = % ownership PreferencesESOPValuation
  11. 11. Art and a science of valuation: multiple methodologies Early Stage Mid Stage http://blog.ourcrowd.com/index.php/2014/05/14/cashing-in-how-to-make-money-investing-in-startups/ Late Stage Source: PreferencesESOPValuation
  12. 12. Understanding objectives of founder/investor relationship: zone of possible agreement (ZOPA) PreferencesESOPValuation
  13. 13. Real Life Case Study Deal terms reflect the current reality at the time they’re crafted PreferencesESOPValuation
  14. 14. Real Life Case Study PreferencesESOPValuation effectively better value
  15. 15. Valuation ESOP Preferences Employee Stock Option Plan Fluid over time, used to recruit and retain talent
  16. 16. Valuation ESOP Preferences Investors want largerFounders want smaller ESOP Counterintuitive
  17. 17. Valuation ESOP Preferences Investing at fully-diluted, premoney valuation with sufficient ESOP allocated to result in target postmoney pool $20M premoney valuation Existing ESOP: 10% Desired ESOP: 20% (10% will come out of premoney) Effective Valuation: $18M
  18. 18. Valuation ESOP Preferences High sticker price (valuation) vs. Lower price per share Something to look out for
  19. 19. Valuation ESOP Preferences Preferences are the ultimate downside protection
  20. 20. Valuation ESOP Preferences We invest $1M at $4M premoney (20% ownership) Company gets acquired at $10M Example Non Participating preferred The greater of [1]x OR prorata $1M OR 20%*$10M $1M < $2M
  21. 21. Valuation ESOP Preferences We invest $1M at $4M premoney (20% ownership) Company gets acquired at $10M Participating preferred [1]x AND prorata Money back and then piece of remaining pie…so, $1M + (20%)x($9M) = $2.8M Example
  22. 22. Valuation ESOP Preferences We invest $1M at $4M premoney (20% ownership) Company gets acquired at $10M Example Partial (capped) Participation [1]x + prorata up to [5]x If exit was $100M, then…
  23. 23. Valuation ESOP Preferences Liquidation prefs can create indifference towards certain exit scenarios Tradeoffs: Relationship between valuation and preferences
  24. 24. Valuation ESOP Preferences Real Life Case Study
  25. 25. Next step? Join us next week for Lesson 2 Anti-dilution protection Board representation Control provisions OurCrowd.com Check out our real-life term sheets by accrediting on our website

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