What Is The Ideal Seed Round Composition? - robgo.org. What Is The Ideal Seed Round Composition?
May 18, 2011 I’ve been having this conversation quite a few times over the last several weeks, so I thought it would be important to do a post on this.The question that I often get asked is “how should I think about the composition of my seed round?” This is related to my prior post on how to think about VC’s in seed rounds, but I’ll try to be more specific. By way of background, of our 12 investments at NextView, 4 were with only angels, 3 were only with seed funds, and 5 were with some combination of VCs, angels, and seed funds. It seems like a high-class problem for an entrepreneur to be able to influence round composition, and it is.
Demystifying the VC term sheet: Drag-along provisions. (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.) For the past couple of months, I’ve been exploring some of the more confusing terminology of VC term sheets. In my last post, I discussed “protective provisions,” which grant the investors the right to veto or block certain corporate actions. In today’s post I examine “drag-along” or “bring-along” provisions, which can be very tricky.Drag-along provisions grant the investors the right to compel the founders and other stockholders to vote in favor of (or otherwise agree to) the sale, merger or other “deemed liquidation” of the company. Investors view such provisions as an important protection, particularly if they seek to exit their investment and sell the company for a price less than the amount of their liquidation preference.
Demystifying the VC term sheet: Protective Provisions. VCs and option pools: Now you’re swimming in the deep end. (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: My co-founder and I have been talking to some VC firms on Sand Hill Road, and I think we’re pretty close to getting at least one term sheet. I read your post a few weeks ago about how one of the common mistakes startups make dealing with VC’s is focusing too much on valuation. You also mentioned there are other important terms that affect the economics of a financing, including the size of the option pool. Can you please explain that? Accordingly, the VC firms will likely require your company to establish a large pool of unallocated options for future employees. For example, if you and the VC negotiate a pre of $6 million, and the VC has agreed to invest $2 million, then the post-money valuation would be $8 million. Beware the trappings of liquidation preference.
Here’s the best way to value your startup. Demystifying the language of VC term sheets. (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: We just got a term sheet from a VC and we were hoping you could help us understand certain timing provisions. In the last paragraph, there is language about the term sheet expiring “at 5:00pm on the day following the date hereof if not accepted by the company prior to such time.”
Also, in a section called “No Shop” there is language that the company “shall not negotiate with or enter into any agreement with any other person … for a period of 90 days following the date hereof.” We’ve been talking to a bunch of VC’s and don’t want to lock ourselves in. No VC, however, wants to be a stalking horse. Let’s look at each of those in the context of your question. Exploding Term Sheets. My advice is to just ignore this paragraph. No Shop Provision. 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.” For example, assume that XYZ Inc. raises $2 million in a Series A round at an $8 million pre-money valuation, and the VC receives 2 million shares of preferred stock at $1 per share; the conversion ratio is 1 (1 divided by 1).
Full Ratchet. Demystifying the VC term sheet: Dividends. (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.) In response to my last two posts demystifying VC term sheets (specifically addressing exploding term sheets and no shop provisions and price-based anti-dilution provisions), I have received a number of questions regarding other terms and provisions in term sheets.Accordingly, I thought it would be helpful to address each of the questions over the next several weeks –creating a comprehensive series of posts relating to VC term sheets. Beyond the most recent topics, I have also previously addressed valuation, liquidation preferences and stock options.
Today, we’ll look at dividends and how to protect your company from over-reaching by the investors. Let’s go over some of those terms. What is a dividend? There are two types of dividends: non-cumulative and cumulative. Demystifying the VC term sheet: Pay-to-play provisions.