Further demystifying the VC term sheet. (Editor’s note: Scott Edward Walker is the founder and CEO of Walker Corporate Law Group, PLLC, a law firm specializing in the representation of entrepreneurs.
He submitted this column to VentureBeat.) A reader asks: I am following-up on your post last week, Demystifying the language of VC term sheets. My co-founder and I also have a term sheet question. We don’t understand what a price-based antidilution adjustment is and what it’s meant to address. The exact language under that section in our term sheet reads as follows: “Subject to standard and customary exceptions, the conversion ratio for Preferred Stock shall be adjusted on a broad weighted average basis in the event of an issuance below the Preferred Stock price, as adjusted.” StealthModeWatch. There are no secrets on the Internet.
And now, thanks to StealthModeWatch, it’s even easier for people to find your secrets–if you’re a company with outside investors. The service, which also includes an API, digs through public records to expose new investments and the people attached to them. StealthModeWatch creator Denis Papathanasiou “was inspired by Josh Kopelman’s The Death of Stealth Mode,” an article which explains how new start-ups raising capital are required by law to file Regulation D forms with the Securities and Exchange Commission (SEC).
The SEC then makes that information public. Surprisingly, many lawyers fail to inform their clients that these disclosures are available on the Internet.