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

2. What VCs Want

3. You Want Money
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4. VCs Want
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5. Slide 4
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6. YouTube and Sequioa $1.65 Billion
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7. Sequoia’s Portfolio
IRR(Portfolio)
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8. What this Means for YOU
(vcwear.com)
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9. And now for something
completely different…
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10. So What Happens if they Like You?
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11. 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
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12. Basic Terms
Date Price
ation
Valu
oney
Pre-M
Investors Slide 11
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13. Slide 12
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14. Company Growth Forecast
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15. Rationalized Forecast
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16. Long Term Financing Strategy
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17. Pre-Money Value
+ =
Pre-Money Invested Capital Post-Money
(Yours) (Theirs) (Mostly Theirs)
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18. Building Enterprise Value
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19. Preferred Shares
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20. IP Assignment
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21. Employee Stock Option Plan (ESOP)
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22. Dividends (Not Yours)
Time
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23. Liquidation Preference (Not Yours)
YOU
VC YOU
VC
LP LP
Good Bad
Times Times Slide 22
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24. More rights and privileges (Not Yours)
THEM
YOU
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25. 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
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26. …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
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www.marsdd.com

27. Shareholders’ Agreement … Information
rights
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28. Board of Directors
VC You You
VC
Collective
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29. Board Meetings
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30. KEY EMPLOYEE AGREEMENTS
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31. STOCK RESTRICTION AGREEMENT
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32. 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
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33. 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

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34. The Golden Rule
The man with the gold rules
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35. Slide 34
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