This document provides an overview and summary of a presentation on how to do a venture capital financing. The presentation covers what venture capitalists look for in investments and good investors, pre-round considerations, negotiating term sheets, deal documentation, the diligence process, closing and post-closing issues, and common pitfalls. The presentation is given by a venture capital and emerging growth company attorney and provides high-level information on each stage of securing a venture capital financing.
1. How to Do a Venture Capital Financing
Presented on July 30, 2020 by Jason Putnam Gordon
Email: jgordon@polsinelli.com
2. 2
• Today’s Discussion is General Information – Not Legal Advice
• We will be discussing rules and exceptions thereto. Those rules,
exceptions, and exceptions to the exceptions may not be applicable to your
situation.
• You need to retain competent legal counsel to review all facts and
circumstances before weighing in with advice.
• Off-the-cuff answers to your questions are not, and should not be taken as,
legal advice.
Important Caveats
3. 3
• My Background
• Big Picture
• What VC’s are looking for in an investment and what makes a
good investor
• Pre-round considerations
• How to negotiate a term sheet
• Deal documentation
• Diligence process
• Closing and post-closing issues
• Common pitfalls and traps for the unwary
Overview
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• Venture Capital and Emerging Growth Company attorney—practicing law
since 2005.
• Polsinelli is an Am Law 100 firm with approximately 900 attorneys in over
twenty offices throughout the US.
• My office is in San Francisco, but I work with companies throughout the
US and the world.
• I love working with entrepreneurs on financings and as outside general
counsel.
My Background
5. 5
• Who is in a startup?
• Who is a founder?
• Is this your first startup?
• Who has previously had a successful exit?
• Who is interested convertible debt; SAFEs/convertible equity; or preferred
financings?
What is your Background?
6. 6
Big Picture
Create Increasing Value
Idea(s)
(Intangible Assets)
Technicians who have
skills like: sales,
marketing, business
acumen
(Services)
Investors
(Capital)
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Big Picture
Create Increasing Value
Idea(s)
(Intangible Assets)
Technicians who have
skills like: sales,
marketing, business
acumen
(Services)
Investors
(Capital)
Company Increases in Value
8. What VCs Want and Who Makes a Good
Investor
Funds Objectives
Building a portfolio where a few companies will be home runs
Fund’s life is usually around 10 years
Strategic investors have different considerations
Company’s Objectives
Investors that will add value beyond dollars contributed
Investors that will be supportive of the company
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Correct structure
Having company documentation in place
Modeling round
Pre-Round Issues
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At this level term sheets are not standard, although some deal points
are standard deal points
How much of the company is being sold based on a valuation
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
How to Negotiate a Term Sheet
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Main Financing Documents
Stock Purchase Agreement
Amended and Restated Certificate of Incorporation
Investors Rights Agreement
Voting Agreement
Right of First Refusal and Co-Sale Agreement
Other documents
Board and stockholder consents
Waivers
Side letters
Pro Forma Cap Table
Potentially a legal opinion
Cleanup
Deal Documentation
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Steps
Investor request for information
Open up a data room
Topics
Corporate records
Business plan and financials
Security Issuances
Material Agreements
Disputes and Litigation
Intellectual Property
Subsidiaries
Miscellaneous
Diligence Process
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Typical Order of Operation of Closing
Board consent
Stockholder consent
Filing charter
Then closing can happen usually with escrowed signature pages
Typical post-closing action items
Securities filings
228 Notices
Issuing stock certificates
Closing binder
Closing and Post-Closing Issues
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Negotiating before you have run a proper pro forma
Securities laws issues
Finders
Poor record keeping
Napkin promises
Common Pitfalls and Traps for the Unwary
16. Recognized by legal research firm BTI Consulting as one
of the top firms for excellent client service and client
relationships, the firm’s attorneys provide value through
practical legal counsel infused with business insight.
PRACTICE STRENGTHS TO ALIGN TO YOUR NEEDS
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GEOGRAPHIC FOOTPRINT SUPPORTS PRACTICE STRENGTHS
21
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Strategically located in
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Located in gateway cities, as well as
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attorneys nationwide
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170
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7
core practice areas
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