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

What VCs Want

You Want Money Slide 2 MaRS www.marsdd.com

VCs Want Slide 3 MaRS www.marsdd.com

Slide 4 MaRS www.marsdd.com

YouTube and Sequioa $1.65 Billion Slide 5 MaRS www.marsdd.com

Sequoia’s Portfolio IRR(Portfolio) Slide 6 MaRS www.marsdd.com

What this Means for YOU (vcwear.com) Slide 7 MaRS www.marsdd.com

And now for something completely different… Slide 8 MaRS www.marsdd.com

So What Happens if they Like You? Slide 9 MaRS www.marsdd.com

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

Basic Terms Date Price ation Valu oney Pre-M Investors Slide 11 MaRS www.marsdd.com

Company Growth Forecast Slide 13 MaRS www.marsdd.com

Rationalized Forecast Slide 14 MaRS www.marsdd.com

Long Term Financing Strategy Slide 15 MaRS www.marsdd.com

Pre-Money Value + = Pre-Money Invested Capital Post-Money (Yours) (Theirs) (Mostly Theirs) Slide 16 MaRS www.marsdd.com

Building Enterprise Value Slide 17 MaRS www.marsdd.com

Preferred Shares Slide 18 MaRS www.marsdd.com

IP Assignment Slide 19 MaRS www.marsdd.com

Employee Stock Option Plan (ESOP) Slide 20 MaRS www.marsdd.com

Dividends (Not Yours) Time Slide 21 MaRS www.marsdd.com

Liquidation Preference (Not Yours) YOU VC YOU VC LP LP Good Bad Times Times Slide 22 MaRS www.marsdd.com

More rights and privileges (Not Yours) THEM YOU Slide 23 MaRS www.marsdd.com

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

…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

Shareholders’ Agreement … Information rights Slide 26 MaRS www.marsdd.com

Board of Directors VC You You VC Collective Slide 27 MaRS www.marsdd.com

Board Meetings Slide 28 MaRS www.marsdd.com

KEY EMPLOYEE AGREEMENTS Slide 29 MaRS www.marsdd.com

STOCK RESTRICTION AGREEMENT Slide 30 MaRS www.marsdd.com

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

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

The Golden Rule The man with the gold rules Slide 33 MaRS www.marsdd.com