Termsheet

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So you have just finished months of grueling investor presentations and due diligence and finally one (or hopefully more) VCs have signaled their interest in negotiating the terms of an investment in your startup. This interest may be in the form of an actual term sheet that they’ve sent to you or a call/meeting/email indicating they would like to make an offer but want to talk about terms before shooting something over the transom. First, congratulations, you are now in a *very* select group of startups. Having been on both sides of the table, here is my list of tips for entrepreneurs negotiating with VCs: 10.

http://www.avc.com/a_vc/2009/03/what-is-a-good-venture-return.html

Lawrence Aragon at PE Hub used the news that Cisco paid $590mm (in stock) for Pure Digital the maker of the super popular Flip Cam to ask this question .

Returns they are looking for

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Norms = context, not guidance

http://wallen.typepad.com/wallen/2008/11/web-funding-norms-are-a-context-not-a-guidance.html

A painful process

http://500hats.typepad.com/500blogs/2007/09/vcs-tech-lawyer.html

i'll have a lot more to say about this in the future, but at the moment i just want to observe that for a group of folks who hang around startups & talk about technology & innovation all day long, most VCs & lawyers i know really need to eat some of their own [startup's] dogfood . Over the past 3-4 months, i've made a few small investments in several startups and become an advisor to a few others. The amount of paper, email, & faxes i have exchanged to get these deals done is FUCKING MIND-BOGGLING .

I recently got some comments on a blog post I did a while ago from Yoichiro “Yokum” Taku, a partner at Wilson Sonsini Goodrich & Rosati and the blogger behind Startup Company Lawyer , on my post about evaluating one or more term sheets.

TS items: power vs. money

http://altgate.com/blog/2008/07/the-science-art-of-term-sheet-negotiation.html

It's explained a bit further down this pearltree. Continue reading, you'll get there... ;_) by wallen Oct 6

I'm not sure to fully understand the concept of "option pool refresh" though by PED Oct 6

Good overview of the various dimensions by wallen Mar 1

Thanks to Atlas Venture for supporting Venture Hacks this month.

VC terms that can really hurt

http://venturehacks.com/articles/terms-that-hurt

http://www.avc.com/a_vc/2009/04/the-three-terms-you-must-have-in-a-venture-investmemt.html

Many years ago, when I was still in my 20s, the managing partner of my first venture firm, Milt Pappas, told me that he felt there were three terms that really mattered in a venture deal (other than price of course).

3 must haves for a VC

Liquidation preferences are a key term in the definition of preferred stock (it’s generally acknowledged to be the second most important economic term). Earlier, I wrote about this and other terms in a post on negotiating a term sheet , but here I want to give some specific examples to illustrate why this is such an important term. You probably already know this, but it’s worth repeating that liquidation preference refers to the procedure for paying investors off in a sale or winding up of the company. It typically includes two components: a preference (which is an amount that gets paid before others) and participation (the ability to "double dip"). Many folks have written on preferences in terms of definitions, so instead I’m going to give some simple examples.

Liquidation preferences

Rationale for the latter

http://www.burningdoor.com/askthewizard/2007/04/venture_terms_liquidation_pref.html

The Wizard was out of town on vacation and what the Wizard learned on vacation is that the family makes no distinction between the evils of working or blogging on vacation. I'm back with a series of posts I wrote on the plane(s) based on assorted emails I've received.

Still minimize it!

Exactly. Liquidation preferences can kill an entrepreneur... by wallen Oct 6

Bon si je comprends bien, faut faire gaffe à ces histoires de liquidation preference et pas se focus complètement sur la valo vu qu'il y a moyen d'y perdre des plumes... by PED Oct 6

Binary Pricing

Stuart Ellman When I (Stuart) just started in business, I worked with cash flowing entities, both buying them and selling them.

I regularly get questions concerning how venture capitalists value companies. In fact, there seems to be an increase in the frequency of this question to me personally and through AskTheVC . It’s not an exact science. On top of that, there isn’t a broad enough market to come anywhere near a public pricing mechanism.

What valuation?

There’s this dance that entrepreneurs and venture capitalists do when it comes time to negotiate the economic terms of an investment.

Valuation - not important?

Over the past few months, I've heard countless VCs utter the words 'we need to own' followed by some number.

The 'We Need To Own' Baloney

Redeye VC: Company Math vs VC Math

Fred Wilson has a great blog post today entitled The 'We Need to Own' Baloney .

“Entrepreneurs should understand the ‘unwritten term in the term sheet’: few VCs will willingly part with a ‘winning company’ (i.e., a company that is executing/performing well) for less than a 10x return.” In another post titled ‘ Unintentional Moonshot ,’ Kopelman said: