Presented 5/11/23 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 Jason Putnam Gordon covers 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 much, much more About the Speaker Jason Putnam Gordon is a results-oriented corporate attorney in the Emerging Growth and Venture Capital practice of the San Francisco office of K&L Gates. Jason has a passion for working with experienced entrepreneurs and executives to make their vision a reality. In his practice, he regularly represents companies throughout their life cycle in matters related to venture capital financing, strategic corporate relationships, corporate formation, complex mergers and acquisitions, sales, and divestitures. Jason also works with angels and venture capitalists as they deploy capital. With industry focuses in health and technology, because of his broad skill set and deep network, Jason regularly works in a wide array of verticals including life sciences, digital health, artificial intelligence, virtual reality, software, hardware, the internet of things, and agricultural technology. Jason works with companies based locally, elsewhere in the U.S. and internationally. Jason brings a unique skill set to the negotiating table and to litigation-minimization strategies in the boardroom. He started his career as a federal law clerk in the United States District Court for the Eastern District of Pennsylvania and then continued as a litigator handling corporate, securities, intellectual property, and commercial litigation before establishing a transactional practice.

1. © Copyright 2022 by K&L Gates LLP. All rights reserved.
Jason Putnam Gordon, K&L Gates LLP
May 11, 2023
Jason.Gordon@klgates.com
How to Do a Venture Capital
Financing
Idea to IPO

2. IMPORTANT CAVEATS
 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.
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3. OVERVIEW
 My Background
 Venture Model
 Choosing VC Investors
 Preliminary Considerations
 Term Sheet Negotiation
 Deal Documentation
 Diligence
 Side Letters
 Closing and Post-Closing Issues
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4. Background
 Venture Capital and Emerging
Growth Company attorney-
practicing law since 2005.
 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 corporate
counsel.
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Jason P. Gordon
Partner
+1.415.882.8124
Jason.Gordon@klgates.com

5. Review of Audience Survey
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6. Investors
(Capital)
Idea(s)
(Intangible Assets)
Technicians who have
skills like: sales,
marketing, business
acumen
(Services)
Company Increases in Value
Inputs + Effort + Time = Increase in Value
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7. Model Growth Path
Founder(s) Angel Seed Series A Series B Series C IPO
Valuation
in
Millions
Value Creation
Time
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8. WHO MAKES A GOOD INVESTOR (AND
HOW TO FIND THEM)
 Investor Objectives
 Traditional VC Funds
 Build a portfolio where a few companies will be home runs
 Fund’s life is usually around 10 years
 Angel investors have different considerations
 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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9. PRELIMINARY CONSIDERATIONS
 Correct structure
 Modeling round
 Style of Deal
 NVCA – https://nvca.org/model-legal-documents/
 NVCA-light
 Series Seed – https://www.seriesseed.com
 Other
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10. PRELIMINARY CONSIDERATIONS:
DEFINITIONS
 Pre-money valuation – the value of the company before
the next round investment
 Post-money valuation – the value of the company after
the round of investment
 Fully-diluted basis – all common stock and anything that
can be converted to (or may become) common stock,
e.g., preferred stock, warrants, options, or option pool
 When dealing with convertible securities, assumptions must be
made and should be scrutinized.
 Names for Priced Rounds
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11. Preliminary Considerations:
Definitions Applied
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Pre-money Valuation
New Investment
Post-money Valuation
$40,000,000
$10,000,000
$50,000,000
$40,000,000 pre-money valuation /
37,000,000 pre-money shares =
$1.0811 price/share
$10,000,000 new investment / $1.0811
price/share =
9,250,000 new shares
issued
Format and figures are for illustrative purposes and should not be interpreted to be applicable to your situation

12. Term Sheet Negotiation: Typical Term Sheet
Terms
 How much of the company is
being sold based on a
valuation
 Dividends
 Liquidation Preferences
 Voting Rights
 Protective Provisions
 Optional and Mandatory
Conversion
 Legal Opinion
 ROFR & Co-Sale
 Drag Along
 Registration Rights
 Anti-dilution Protection
 Vesting for Founders
 Documentation
 Attorneys Fees
 No Shop and Confidentiality
Provisions
 Whether investors will get a
board seat and/or observer
seat
 Pro Rata Rights
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13. DEAL DOCUMENTATION
 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 (discussed in a moment)
 Pro Forma Cap Table
 Potentially a legal opinion
 Cleanup
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14. DEAL DOCUMENTATION: SIDE LETTERS
 Letter agreements outside of the main financing
documents
 Common rights include
 Information rights
 Observer seat
 Pro Rata Rights
 Commercial agreements
 Other risk-mitigating related covenants
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15. DILIGENCE PROCESS
 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
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16. INTERFACE BETWEEN DEAL
DOCUMENTATION AND DILIGENCE
 Diligence –
 The process during which investors obtain information about the
company to identify and assess risk investment is made.
 Deal Documentation –
 The representations in the stock purchase agreement provide
statements of fact regarding categories of risk, which when read
connection with the disclosure schedule accurately conveys the
information by which the investors can assess risk.
 Covenants, commonly in the Investors’ Rights Agreement are
contractual obligations that the company must undertake post
closing.
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17. CLOSING AND POST-CLOSING ISSUES
 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
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18. COMMON PITFALLS AND TRAPS FOR THE
UNWARY
 Negotiating before you have run a proper pro
forma
 Securities laws issues, including Finders
 Poor record keeping
 IP Rights
 Napkin promises
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19. Questions/Comments