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![Copyright (c) 2003 Ziya G. Boyacigiller
Term Sheet
TERM SHEET
FOR SERIES A PREFERRED STOCK FINANCING OF
[Insert Company Name], INC.
[ __, 200_]
This Term Sheet summarizes the principal terms of the Series A Preferred Stock
Financing of [___________], Inc., a [Delaware] corporation (the “Company”). In
consideration of the time and expense devoted and to be devoted by the Investors with
respect to this investment, the No Shop/Confidentiality and Counsel and Expenses
provisions of this Term Sheet shall be binding obligations of the Company whether or
not the financing is consummated. No other legally binding obligations will be created
until definitive agreements are executed and delivered by all parties. This Term Sheet is
not a commitment to invest, and is conditioned on the completion of due diligence, legal
review and documentation that is satisfactory to the Investors. This Term Sheet shall be
governed in all respects by the laws of the [State of Delaware].](https://image.slidesharecdn.com/newventurefinancing-150509183013-lva1-app6892/85/New-venture-financing-25-320.jpg)
Uploaded byZiya-B
New venture financing
1. The document discusses new venture financing and managing high-risk investments, using poker as a metaphor. It covers topics like choosing industries, management teams, capital intensity, valuation, and reasons to raise venture capital. 2. Key points include that the single most important determinant of success is choosing an industry, the second most important is the management team. Capital intensity and minimizing the amount of money required for a business also makes it more attractive. 3. The document provides advice on finding "right/non-consensus" opportunities, recognizing vision in entrepreneurs, establishing valuations and deal terms, and choosing the ideal funding sources and venture capitalists to work with.
More Related Content
New venture financing
- 1. Copyright (c) 2003Ziya G. Boyacigiller New Venture Financing Ziya Boyacigiller Sabanci University (Based on a Presentation by Andy Rachleff, Benchmark Capital)
- 2. Make a bet: 1.Give me 1TL each now, and I will give everyone back 1.25TL (except for one person) at the end of this presentation. 2. Give me 1TL each now, and I will give back one of you 10TL next month, and the others 0.25TL. 3. What would you do if I raised amounts by 1000X? Copyright (c) 2003 Ziya G. Boyacigiller
- 3. New-Venture Financing is aboutmanaging high-risk investments Copyright (c) 2003 Ziya G. Boyacigiller
- 4. Poker as aMetaphor… Copyright (c) 2003 Ziya G. Boyacigiller Wipe Out Ante Follow on Bets Chips Cards Dealt
- 5. Ziya G. Boyacigiller(c) 2008 5 In 2000, there were 454 spinoffs, within all American academic institutions, pp57 In 2000, average was 4.2% spinoffs-to-disclosures ratio within 26 selected universities (~37% of total with spinoffs) in USA. Pp68 During 1980-1996, MIT spinoffs = 134, went public = 24, 18% public “spin-off ratio, pp19 & pp30 Using 4.2% and 18%, we get 0.8%. This means almost 1 spinoff for 100 disclosures succeed to go public (IPO). (Note that this ratio is for MIT and is much higher than non-academic success rates. For example, the rate for most startup companies is probably over 10 times worse!) < 3 in 1,000 success rate…
- 6. “Success Bias” Idea toIPO Reviewed plans to IPO Funded plans to IPO 6 in 1,000,000 60 in 10,000 Less than 1 in 10 Source: Saratoga Venture Finance
- 7. 7 Venture Capital -Size of the Market US - 2006 $27.5 bn 1446 transactions $10.5 M average investment Europe - 2006 Euro 4.1 bn 867 transactions Euro 14 M average investment
- 8. Copyright (c) 2003Ziya G. Boyacigiller Venture Capital Food Chain INSTITUTIONAL INVESTORS (Limited Partners – e.g. Endowments, Pension Funds, High worth individuals) VENTURE CAPITALISTS (Finding and Funding Entrepreneurial Companies) ENTREPRENEURS (Starting and Building Companies)
- 9. 9 Venture Capital -How the VCs make money? Raise “fund” every 2-4 years Pension funds, financial institutions, and specialist “fund of fund” investors, high net-worth individuals/families Invest money over 3-5 years ~ 1/2 investments lose money ~ 1/3 investments break even ~ 1/6 investments make (lots of) money Very small “management fee” on funds managed ~1-2.5% PA “Carry” ~20-25% x (Total Return-Total Amount Invested)
- 10. Copyright (c) 2003Ziya G. Boyacigiller Asset Allocation for a Limited Partner
- 11. Copyright (c) 2003Ziya G. Boyacigiller The Trade-off Between Risk & Return
- 12. Metric Used: IRR Copyright(c) 2003 Ziya G. Boyacigiller IRR “Internal Rate of Return” Parameters: • Initial Investment • Follow on Investments • Cash Out • Time (maximum 10-12 years) Use Excel built in formula….
- 13. VC Firms Performance Kleiner Perkins Caufield& Byers IRR Sequoia IRR Matrix Partners IRR 1992 fund 39%/y 1992 fund 110%/y 1995 fund 223%/y 1994 fund 122%/y 1995 fund 175%/y 1997 fund 516%/y 1996 fund 287%/y 1998 fund 93%/y 2000 fund -30%/y 1999 fund -21%/y 1999 fund -5%/y 2001 fund -39%/y 2000 fund -16%/y 2000 fund -25%/y Source: Venture Scoreboard
- 14. VC Returns (asof 3/31/04) VC Fund Type 1 year 3 year 5 year Early Seed funding -2.9% -19.8% 47.1% Balanced funding 20.5% -9.4% 17.5% Later stage funding 38% -6.0% 7.1% All venture funds 15.7%* -13.3% 22.0% Stock Indexes Nasdaq 48.7% 2.7% -4.1% S&P 500 32.8% -1.0% -2.6%% Source: SJMN 7/22/04 * First double digit yearly return since 2000
- 15. Copyright (c) 2003Ziya G. Boyacigiller Which of the following firms would you rather invest in? Each invests $1 million per company in 10 companies: 1. One gets 2x their money on all 10. 2. The other loses all their money in 8 and gets >20x their money on the remaining 2.
- 16. Copyright (c) 2003Ziya G. Boyacigiller Summary of the Investment Business
- 17. Copyright (c) 2003Ziya G. Boyacigiller How do you find Right/Non-Consensus?
- 18. Copyright (c) 2003Ziya G. Boyacigiller How can you recognize vision? •Early insight into technology inflection point (disruptive innovation) •The Napkin test
- 19. Single most important determinantof success that overwhelms all else is the choice of industry. Copyright (c) 2003 Ziya G. Boyacigiller
- 20. Copyright (c) 2003Ziya G. Boyacigiller Second Most Important Determinant of Success is the Effect of Management Team •When a great management team meets a lousy market market wins •When a lousy management team meets a great market market wins •When a great management team meets a great market something special happens
- 21. Execution “Effectof Management Team” Copyright (c) 2003 Ziya G. Boyacigiller
- 22. Copyright (c) 2003Ziya G. Boyacigiller Capital Intensity •Least Amount of Money = Most Attractive Business •Minimize Capital Required by High gross margins (Unfair advantage) monopoly Rapid escape velocity (Product/Market fit) importance=high, satisfaction=low
- 23. Copyright (c) 2003Ziya G. Boyacigiller How do Valuation & Terms get established? •Look at milestones achieved YDY (aynasi istir kisinin, lafa bakilmaz…) DWYSYWD (credibility is doing what you promise…) •Look at comparables (It’s just like buying a house…) •Then it’s up to supply & demand
- 24. Copyright (c) 2003Ziya G. Boyacigiller Milestones Chart to CF+
- 25. Copyright (c) 2003Ziya G. Boyacigiller Term Sheet TERM SHEET FOR SERIES A PREFERRED STOCK FINANCING OF [Insert Company Name], INC. [ __, 200_] This Term Sheet summarizes the principal terms of the Series A Preferred Stock Financing of [___________], Inc., a [Delaware] corporation (the “Company”). In consideration of the time and expense devoted and to be devoted by the Investors with respect to this investment, the No Shop/Confidentiality and Counsel and Expenses provisions of this Term Sheet shall be binding obligations of the Company whether or not the financing is consummated. No other legally binding obligations will be created until definitive agreements are executed and delivered by all parties. This Term Sheet is not a commitment to invest, and is conditioned on the completion of due diligence, legal review and documentation that is satisfactory to the Investors. This Term Sheet shall be governed in all respects by the laws of the [State of Delaware].
- 26. Copyright (c) 2003Ziya G. Boyacigiller It is all about the pie… 50% 10%
- 27. Copyright (c) 2003Ziya G. Boyacigiller
- 28. Copyright (c) 2003Ziya G. Boyacigiller
- 29. Copyright (c) 2003Ziya G. Boyacigiller
- 30. Ref: Golden HornVentures 30 Reasons to Raise VC Unique Product or Concept Excellent Development Capability Large Potential Market Opportunity Intense Competition Likely Need to Move Rapidly Implications VC Funding Supports: • Capital • Network • Experience & Expertise • Credibility & PR
- 31. Copyright (c) 2003Ziya G. Boyacigiller What VCs Don’t Look For •Another Microsoft! •Do you think they care if you build a long-term great company (beyond their holding period)? - No benefit to IRR or distributions - Impacts their reputation
- 32. Copyright (c) 2003Ziya G. Boyacigiller Who is the ideal funding source? Potential Market Size Ideal Funding Source Small Bootstrap or Angel Unclear Bootstrap or Angel then VC Large Venture Capital
- 33. Copyright (c) 2003Ziya G. Boyacigiller How should you choose among Venture Capitalists / Investors •Industry experience / perspective •Recruiting help (network) •Partnering/Contacts •Brand/Credibility •Price/Stage •Funding Required •Location •Chemistry
- 34. Copyright (c) 2003Ziya G. Boyacigiller Who should you ask for advice? •Successful Entrepreneurs •Top deal lawyers •Investment bankers •Frequent advisors to the VCs - Professors - Angel Investors •Inovent •Endeavor