The document discusses key legal aspects of negotiating shareholders' and investment agreements for startups. It covers the cycle of a typical venture capital investment including a letter of intent, investment agreement, capital increase, and closing. It then discusses provisions within the investment agreement including vesting which transfers founder shares if they leave the company, liquidation preference which favors investors in an exit, tag/drag rights during a sale, and anti-dilution clauses to protect investors from share dilution. Maximizing advantages and minimizing risks during negotiation of these legal structures is important for both founders and investors.
Early Stage Venture Financings: Terms, Negotiations, and Closingideatoipo
Getting your first round of financing closed is a critical milestone for every start up.
The speakers will review how to find the right investor, how to negotiate the key terms with a view to future rounds, and how to prepare for the due diligence process to get to a quick closing.
David Shore gave this presentation to the Island Tech 2009 conference on the topic of Angel Investing. Rick Rasmussen co-presented on the mechanics of developing an angel group (with a different slide deck).
AIT Startup Lecture Series: Set up your Startup - N. AntoniouAIT_Communications
Christina Tsakona presenting at AIT's Startup Lecture Series - Steps to Success: “Set Up Your Start Up - Investment Term Sheets in Greece/ Europe/ US”.
In collaboration with AIT and CoLab@AIT, this event focused on investment term sheets. A team of attorneys analyze the basic legal terms in investment term sheets and convertible notes for startup companies that are about to or wish to raise funds from Greek, European or US investors.
A crash course in angel and venture capital funding at SVOD Summer 2013AmBAR
Theresia Gouw, Accel Partners, and Iiya Strebulaev, Stanford, offered a crash course in angel and venture capital funding at SVOD Summer 2013. The pair explained the science behind the practice, and what it takes to succeed in the crowded startup community.
How to Organize & Structure a Real Estate SyndicationLandwin
Real estate sector is one of the most sought after sector for investing due to the handsome returns on investment. Nowadays, investors are looking to expand their portfolio due to which real estate syndication is gaining widespread popularity. There are several ways to organize and structure a real estate syndication. However, many investors are not aware of these methods. Go through the slide to know more about real estate syndication.
Early Stage Venture Financings: Terms, Negotiations, and Closingideatoipo
Getting your first round of financing closed is a critical milestone for every start up.
The speakers will review how to find the right investor, how to negotiate the key terms with a view to future rounds, and how to prepare for the due diligence process to get to a quick closing.
David Shore gave this presentation to the Island Tech 2009 conference on the topic of Angel Investing. Rick Rasmussen co-presented on the mechanics of developing an angel group (with a different slide deck).
AIT Startup Lecture Series: Set up your Startup - N. AntoniouAIT_Communications
Christina Tsakona presenting at AIT's Startup Lecture Series - Steps to Success: “Set Up Your Start Up - Investment Term Sheets in Greece/ Europe/ US”.
In collaboration with AIT and CoLab@AIT, this event focused on investment term sheets. A team of attorneys analyze the basic legal terms in investment term sheets and convertible notes for startup companies that are about to or wish to raise funds from Greek, European or US investors.
A crash course in angel and venture capital funding at SVOD Summer 2013AmBAR
Theresia Gouw, Accel Partners, and Iiya Strebulaev, Stanford, offered a crash course in angel and venture capital funding at SVOD Summer 2013. The pair explained the science behind the practice, and what it takes to succeed in the crowded startup community.
How to Organize & Structure a Real Estate SyndicationLandwin
Real estate sector is one of the most sought after sector for investing due to the handsome returns on investment. Nowadays, investors are looking to expand their portfolio due to which real estate syndication is gaining widespread popularity. There are several ways to organize and structure a real estate syndication. However, many investors are not aware of these methods. Go through the slide to know more about real estate syndication.
Pre-Series A Funding Vehicles ( Convertible Notes, SAFE, KISS, etc.)ideatoipo
Obtaining funding for early stage startups can be challenging. The array of funding options available to entrepreneurs can be confusing and fraught with pitfalls.
This presentation covers:
1) convertible notes
2) SAFE documents
3) KISS documents
and more!
Η Νάγια Αντωνίου μας ανέλυσε τον όρο term sheet και τους πιο σημαντικούς όρους του. Πρόκειται για ένα έγγραφο που δείχνει την πρόθεση του επενδυτή να επενδύσει στην εταιρεία και να λάβει ως αντάλλαγμα ένα ποσοστό της, δηλαδή μετοχές της εταιρείας. Ένα term sheet περιγράφει τις λεπτομέρειες της επένδυσης, συμπεριλαμβανομένου του valuation, της τιμής της κάθε μετοχής της εταιρείας, του liquidation preference κτλ. Είναι σημαντικό να σημειωθεί οτι ο όρος term sheet δεν είναι πάντοτε νομικά δεσμευτικός και δεν μπορεί να επιβληθεί σε όλες τις περιπτώσεις. Θα λέγαμε οτι είναι παρόμοιο με ένα προ-σύμφωνο, αλλά συνήθως με μικρότερη νομική ισχύ καθότι η εταιρεία με τον επενδυτή θα υπογράψουν το βασικό συμβόλαιο μετά την ολοκλήρωση των διαπραγματεύσεων και του due diligence.
Startup Seed Funding: From Bootstrapping to Equity FinancingDavid Ehrenberg
Are you ready to make the leap from bootstrapping to investment capital? If so browse through this static deck to find the following topics:
- Preparing your company for investment capital
- Current deal flow
- Convertible notes vs series seed preferred
- Valuation and purchase terms
- Term sheet negotiation
- And more!
CROSS BORDER MERGER AND ACQUISITION AND TAKEOVER DEFENSESAnanyaBajoria
This project provide you with description of what is M&A, about its factors, challenges and development with respect to Cross Border. It also talks about Defense Takeover, types of takeover and different types of tactics used for defense takeover. This basically summarises Cross border merger and acquisition as well as defense takeover with a very basic pointers.
How to Position Your Startup for Venture Capital Fundingideatoipo
During this webinar you will learn the basics of the venture model and path along with the necessary steps to take so that your company’s legal structure is an attractive investment. The discussion will cover:
1. Why a Delaware C-Corp is the most-common structure
2. How to document the relationship of the founders and early employees
3. The typical funding stages of a successful startup
4. An overview of convertible debt and SAFEs
5. Why it’s critical to run pro forma cap tables before financings
6. What happens in a venture financing
7. Why compliance with securities laws is important
8. Common legal mistakes in raising capital
9. And much, much more
Learning how a VC firm works behind the scenes is a good way to gain important strategic insights on becoming a more attractive investment. But understanding the ins and outs of a VC firm can be easier said than done, even for entrepreneurs who spend a lot of time speaking to investors.
Emerging and high growth companies will have to navigate the complexities of early stage term sheets on their way to raising capital. In order to get to a term sheet, it’s crucial for you to focus on building and developing relationships with your investors right from the beginning.
A residential real estate investment veteran, Sean Zarinegar has experience as a CEO of several investment firms in the industry. Currently, Sean Zarinegar is the CFO of American Housing Income Trust, Inc. (AHIT), a managed real estate investment company, where he applies his investment knowledge obtained from industry experience in Arizona, Colorado, and Southern California. One of the company’s goals is to build portfolios of single-family houses through cash or or umbrella partnership REITs (UPREITs).
Raising Capital: Negotiating with Potential Investors (Series: The Start-Up/S...Financial Poise
Every business needs capital (cash) to fund its activities. But not all capital is created equal. At the most macro level, a business can raise cash by selling equity or by borrowing (and these alternatives are not by any means mutually exclusive).
This webinar explains the different types of capital available to fund a startup; how to identify potential funding sources; how to evaluate competing funding proposals; and how (and when) to negotiate financing terms. In addition, this webinar will address the kinds of investors for entrepreneurs to consider for their start-ups.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/raising-capital-negotiating-with-potential-investors-2021/
Pre-Series A Funding Vehicles ( Convertible Notes, SAFE, KISS, etc.)ideatoipo
Obtaining funding for early stage startups can be challenging. The array of funding options available to entrepreneurs can be confusing and fraught with pitfalls.
This presentation covers:
1) convertible notes
2) SAFE documents
3) KISS documents
and more!
Η Νάγια Αντωνίου μας ανέλυσε τον όρο term sheet και τους πιο σημαντικούς όρους του. Πρόκειται για ένα έγγραφο που δείχνει την πρόθεση του επενδυτή να επενδύσει στην εταιρεία και να λάβει ως αντάλλαγμα ένα ποσοστό της, δηλαδή μετοχές της εταιρείας. Ένα term sheet περιγράφει τις λεπτομέρειες της επένδυσης, συμπεριλαμβανομένου του valuation, της τιμής της κάθε μετοχής της εταιρείας, του liquidation preference κτλ. Είναι σημαντικό να σημειωθεί οτι ο όρος term sheet δεν είναι πάντοτε νομικά δεσμευτικός και δεν μπορεί να επιβληθεί σε όλες τις περιπτώσεις. Θα λέγαμε οτι είναι παρόμοιο με ένα προ-σύμφωνο, αλλά συνήθως με μικρότερη νομική ισχύ καθότι η εταιρεία με τον επενδυτή θα υπογράψουν το βασικό συμβόλαιο μετά την ολοκλήρωση των διαπραγματεύσεων και του due diligence.
Startup Seed Funding: From Bootstrapping to Equity FinancingDavid Ehrenberg
Are you ready to make the leap from bootstrapping to investment capital? If so browse through this static deck to find the following topics:
- Preparing your company for investment capital
- Current deal flow
- Convertible notes vs series seed preferred
- Valuation and purchase terms
- Term sheet negotiation
- And more!
CROSS BORDER MERGER AND ACQUISITION AND TAKEOVER DEFENSESAnanyaBajoria
This project provide you with description of what is M&A, about its factors, challenges and development with respect to Cross Border. It also talks about Defense Takeover, types of takeover and different types of tactics used for defense takeover. This basically summarises Cross border merger and acquisition as well as defense takeover with a very basic pointers.
How to Position Your Startup for Venture Capital Fundingideatoipo
During this webinar you will learn the basics of the venture model and path along with the necessary steps to take so that your company’s legal structure is an attractive investment. The discussion will cover:
1. Why a Delaware C-Corp is the most-common structure
2. How to document the relationship of the founders and early employees
3. The typical funding stages of a successful startup
4. An overview of convertible debt and SAFEs
5. Why it’s critical to run pro forma cap tables before financings
6. What happens in a venture financing
7. Why compliance with securities laws is important
8. Common legal mistakes in raising capital
9. And much, much more
Learning how a VC firm works behind the scenes is a good way to gain important strategic insights on becoming a more attractive investment. But understanding the ins and outs of a VC firm can be easier said than done, even for entrepreneurs who spend a lot of time speaking to investors.
Emerging and high growth companies will have to navigate the complexities of early stage term sheets on their way to raising capital. In order to get to a term sheet, it’s crucial for you to focus on building and developing relationships with your investors right from the beginning.
A residential real estate investment veteran, Sean Zarinegar has experience as a CEO of several investment firms in the industry. Currently, Sean Zarinegar is the CFO of American Housing Income Trust, Inc. (AHIT), a managed real estate investment company, where he applies his investment knowledge obtained from industry experience in Arizona, Colorado, and Southern California. One of the company’s goals is to build portfolios of single-family houses through cash or or umbrella partnership REITs (UPREITs).
Raising Capital: Negotiating with Potential Investors (Series: The Start-Up/S...Financial Poise
Every business needs capital (cash) to fund its activities. But not all capital is created equal. At the most macro level, a business can raise cash by selling equity or by borrowing (and these alternatives are not by any means mutually exclusive).
This webinar explains the different types of capital available to fund a startup; how to identify potential funding sources; how to evaluate competing funding proposals; and how (and when) to negotiate financing terms. In addition, this webinar will address the kinds of investors for entrepreneurs to consider for their start-ups.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/raising-capital-negotiating-with-potential-investors-2021/
Slides and notes from the MaRS Startup Investor Workshop. The event took place on September 30th, 2016 and featured Mark Skapinker and Sophie Forest from Brightspark, David Shore from OurCrowd.
Raising Capital: Negotiating with Potential InvestorsFinancial Poise
Every business needs capital (cash) to fund its activities. But not all capital is created equal. At the most macro level, a business can raise cash by selling equity or by borrowing (and these alternatives are not by any means mutually exclusive).
This webinar explains the different types of capital available to fund a startup; how to identify potential funding sources; how to evaluate competing funding proposals; and how (and when) to negotiate financing terms. In addition, this webinar will address the kinds of investors for entrepreneurs to consider for their start-ups.
Part of the webinar series: The Start-Up/Small Business Advisor 2022
See more at https://www.financialpoise.com/webinars/
ESOPs 101 (Series: Cross-Training for Business Lawyers 2020) Financial Poise
Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. And while they are generally touted as designed to promote employees’ interest and efforts in maximizing the value of the company for the benefit of both employer and employees, ESOPs are often used as a method of corporate finance by the sponsoring company.
To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/esops-101-2020/
How to Structure Venture Capital Term Sheets for a Win-Win Deal ideatoipo
T 4/13/21 How to Structure Venture Capital Term Sheets for a Win-Win Deal
7 PM to 8:30 PM Pacific Time (Online)
https://www.meetup.com/Silicon-Valley-Startup-Idea-to-IPO/events/276787604/
This presentation was given to a group of Founders, CEO's and praticipants in the Financing of their growth companies at the Digital Media Zone at Ryerson University in Toronto today.
Booklet & Term Sheet of first Setting the Deal Athens, that took place during Panorama of Entrepreneurship and Career Development on March 21st, 2105 featuring Spyros Trachanis (Odyssey JEREMIE Partners), John Papadakis (Pollfish), Nayia Antoniou (N. Antoniou & Associates), Nik Kalliagkopoulos (Randstad Innovation Fund) and Demetrios Pogkas (Startupper.gr).
Private Equity is a form of investment in equity capital of a company that is not quoted on a public exchange. Obtaining PE is very different from raising debt or a loan from a lender, such as a bank. Lenders have a legal right to interest on a loan and repayment of the capital, irrespective of your success or failure.
Understand what a Collective Investment Scheme (CIS) is
Understand the key stakeholders within the CIS environment
Have an idea of the Legal Framework of a CIS
Understand the corporate governance landscape
Understand the operational environment and pain points
The presentation is about valuation of a start-up and usual deal structure - term sheet.
In the presentation you can find an overview why traditional valuation methods don't work (DCF, P/E multiple,...) and what are the real life approaches. You can also find more about types of the investments and potential exits.
The second part of the presentation is dedicated to the term-sheet and most frequent terms in an equity investment, especially in Central and Eastern Europe. In the presentation are listed the most frequent provision you can stumble upon, but no term sheet includes all of them.
In the presentation you can learn about many different clauses that influence economics and control in a venture capital deal. Nevertheless you should read more on the web (Term Sheet Hacks...) and the books like Venture Deal to have a clear picture if you have a good deal on the table or not for your startup.
This presentation, from the Invest for the Future Conference on January 25, 2011, aims to help women entrepreneurs increase access to finance for their business by explaining Private Equity (PE) in easy to understand terms.
The presentation discusses what PE is, how it can be used to finance or start up your business, and what to expect in a base-case PE deal.
Thanks,
IFTF Team
Similar to Workshop Negotiation of Shareholders/Investment Agreements (20)
4. Page 4
Cycle of a VC Investment -
Legal steps to preserve venture capital
Letter of Intent (LOI)
/ Term Sheet
Negotiation of Investment and
Shareholders‘ Agreement
(Gesellschafter-/
Beteiligungsvereinbarung)
Capital Increase
against issuance of
new shares
(Kapitalerhöhung)
► Revision/Amendment of Articles
of Association (Überarbeitung der
Satzung)
► Representations and Warranties
(Garantien und Haftung der
Gründer)
► Rights of First Refusal
(Vorerwerbsrechte)
► Employee Participation Program
(ESOP)
► Information Rights
► Rules of Procedure for the
Management (Geschäftsordnung
für die Geschäftsführer)
► Catalogue of Business Trans-
actions that require the Approval
of the Investor‘s Majority (Katalog
zustimmungspflichtiger Ge-
schäftsführungsmaßnahmen)
► Capital
Contribution
► Non Statutory
Payments into the
Capital Reserves
Exclusiveness
Signing Closing
6. Page 6
Vesting
Founders accept to transfer
their company shares, if they
are not operating for the start-
up anymore (usually as
managers)
Should be defined as detailed
as possible in the Investment
Agreement
Essential for investors‘ decision
to take stake in a start-up
business
Extent of such commitment and
valuation of shares may
depend on the reason for
leaving the company (“Good
Leaver“ / “Bad Leaver“)
Vesting Clause
7. Page 7
Vesting -
Advantages + Chances
Clearly define provision in order
to prevent exhaustive
arguments between founders
which can lead to blockades of
the business
Incentive for founders to
commit to the start-up business
long-term
The company may receive
shares to redistribute for
further incentive measures
Interest of investors to bind
founders as managers to the
start-up long-term
8. Page 8
May prolong the continuance of
a founder as shareholder
artificially
In case of conflict litigation
regarding the term “Bad
Leaver“ is likely
Founders commit to leave the
company against their will and
to transfer shares below market
value
“All or nothing”- rule could cost
founder all shares if he leaves
on its own discretion
Vesting -
Disadvantages + Risks
10. Page 10
Liquidation Preference
• Founders should fully understand possible consequences
of liquidation preferences regarding the distribution of
proceeds and always bear this in mind during financing
rounds with the aid of computing models
• Also to be recognized is the interplay between the
amount of the enterprise valuation and the arrangement
of the liquidation preference
Provision in the
Investment
Agreement which
favours Investor in
the distribution of
exit proceeds
Distinction
between
• simple
• repeated
• interest-paying
Liquidation
Preference
Depending on the
agreed multiple
the favoured
Investor receives
his [Investment +
X] before any
disbursements to
other
shareholders
Negotiation of a
Liquidation
Preference is
frequently
neglected for the
benefit of other
talking points
12. Page 12
Tag Along - Drag Along
Tag along (Co-Sale Right) Drag along (Co-Sale Obligation)
► Investor is granted a co-sale right in
order to participate in early exit
opportunities
► If one or more shareholders intend to
sell their shares, the investor may
demand to sell his shares proportionally
or entirely to equal terms
► Investor demands drag along right, in
order to not miss exit opportunities due
to his position as minority shareholder
► Alternative: trigger by shareholders‘
resolution with agreed-upon majority
► Commitment of founding shareholders
to sell all their shares on equal terms on
demand
Standard clause -
difficult to negotiate
Timing and threshold value
should be negotiated
14. Page 14
Anti-Dilution
Anti-dilution clauses protect VC investors from
uncertainties of business valuation at the time of the
investment
Shall protect investor
from dilution of his
shares from a
proprietary perspective
Dilution is threatening
during a so calles
‚Down Round‘
Capital loss due to low
valuations is balanced
with additional shares
Variation:
Claim of the beneficiary to receive newly issued shares at
nominal value to preserve the percentage interest (due to
compensatory increase in share capital)
15. Page 15
Anti-Dilution
Advantages
To limit negative consequences of anti-dilution
clauses for founders, it is possible to agree on a
ruling which says that the clause only applies if
investors themselves take part in the new
financing round in a certain way, i.e. pay to play.
Modification for the benefit of
the Founders:
“Pay-to-Play“
16. Page 16 EY Start-Up Challenge
Dr. Max Lipsky
Senior Associate, Rechtsanwalt
Tel: +49 40 36132 17034
Mobil: +49 160 939 17034
E-Mail max.lipsky@de.ey.com
www.start-up-initiative.ey.com
Questions?
Please contact us anytime!