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What VCs Want (and why they call it 'Vulture Capital')

Speaker: Charles Plant, MaRS Advisor
In this lecture at we look at:

* How VCs make money
* What they want in return for their money
* How they structure deals
* And why they call it “Vulture Capital”

This is part of the CIBC Presents Entrepreneurship 101 lecture series. For more information and video: http://www.marsdd.com/Events/Event-Calendar/Ent101/2009/terms-of-investments-02252009.html

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What VCs Want (and why they call it 'Vulture Capital')

  1. What VCs Want
  2. You Want Money Slide 2 MaRS www.marsdd.com
  3. VCs Want Slide 3 MaRS www.marsdd.com
  4. Slide 4 MaRS www.marsdd.com
  5. YouTube and Sequioa $1.65 Billion Slide 5 MaRS www.marsdd.com
  6. Sequoia’s Portfolio IRR(Portfolio) Slide 6 MaRS www.marsdd.com
  7. What this Means for YOU (vcwear.com) Slide 7 MaRS www.marsdd.com
  8. And now for something completely different… Slide 8 MaRS www.marsdd.com
  9. So What Happens if they Like You? Slide 9 MaRS www.marsdd.com
  10. What exactly is a term sheet? term sheet is an offer to invest in a company.  A is tabled by investors of all stripes: angels, VC’s,  It strategic investors is intended only to outline the basic points of an  It agreement in principle around which such binding legal documentation may be structured is not the final document on the subject.  It sheets are negotiable  Terms Slide 10 MaRS www.marsdd.com
  11. Basic Terms Date Price ation Valu oney Pre-M Investors Slide 11 MaRS www.marsdd.com
  12. Slide 12 MaRS www.marsdd.com
  13. Company Growth Forecast Slide 13 MaRS www.marsdd.com
  14. Rationalized Forecast Slide 14 MaRS www.marsdd.com
  15. Long Term Financing Strategy Slide 15 MaRS www.marsdd.com
  16. Pre-Money Value + = Pre-Money Invested Capital Post-Money (Yours) (Theirs) (Mostly Theirs) Slide 16 MaRS www.marsdd.com
  17. Building Enterprise Value Slide 17 MaRS www.marsdd.com
  18. Preferred Shares Slide 18 MaRS www.marsdd.com
  19. IP Assignment Slide 19 MaRS www.marsdd.com
  20. Employee Stock Option Plan (ESOP) Slide 20 MaRS www.marsdd.com
  21. Dividends (Not Yours) Time Slide 21 MaRS www.marsdd.com
  22. Liquidation Preference (Not Yours) YOU VC YOU VC LP LP Good Bad Times Times Slide 22 MaRS www.marsdd.com
  23. More rights and privileges (Not Yours) THEM YOU Slide 23 MaRS www.marsdd.com
  24. 60% of Preferred Share holders must -laws agree to: r by arter o t of ch ndmen me any a any sale of assets reclassifi cation of shares mer ger Slide 24 MaRS www.marsdd.com
  25. …and they also must agree to: of erms defined t in the es (as e chang Employe materia l ateria of Key any l change in t ny m he Business change in ac ent a , any materia counting poli oym l mpl cy or change e of year end ) below Blah the c re ESOP ation of t h , any chan e ESOP a n ge in the n d any incr umbe e r of d ase in the irecto who rs yees plo wco ny em ers of Ne t of a ld tmen shareho in appo s or g the , officer in nclud tors ons i ny direc acti a trans th with th leng leng rm’s rm’s on-a at a all n t acting o are n Slide 25 MaRS www.blah.com www.marsdd.com
  26. Shareholders’ Agreement … Information rights Slide 26 MaRS www.marsdd.com
  27. Board of Directors VC You You VC Collective Slide 27 MaRS www.marsdd.com
  28. Board Meetings Slide 28 MaRS www.marsdd.com
  29. KEY EMPLOYEE AGREEMENTS Slide 29 MaRS www.marsdd.com
  30. STOCK RESTRICTION AGREEMENT Slide 30 MaRS www.marsdd.com
  31. Weasel words – there will be conditions Due dilig ence Prior agre emen ts and wa ivers ment tive Invest respec ssary Investors’ rs, as nece the y irecto Approval b Boards of D /or mittees and Com Usual representations and warranties Slide 31 MaRS www.marsdd.com
  32. Exclusivity and Acceptance Any VC giving you a term sheet will want   exclusivity for a period of time. You can’t shop it around. You’ll get a deadline for acceptance   You can negotiate some terms   Watch out what you ask for   Slide 32 MaRS www.marsdd.com
  33. The Golden Rule The man with the gold rules Slide 33 MaRS www.marsdd.com
  34. Slide 34 MaRS www.marsdd.com

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