page director: Brian D. Butler

contributors:   if you are interested in contributing see here

Sample:

FFI Plain Preferred Term Sheet -

Table of Contents:

Term Sheet (negotiation with VC's)

When you do get to a term sheet, valuation is important, however the terms are equally, if not even more important. Although there are many key terms, liquidation preference and participation are terms that are probably the most important to understand as they may severely affect the entrepreneurs outcome.

Liquidation preference guarantees that investors get X times their investment prior to any money going to common shareholders in a distrubtion. A great post as to why investors want liquidation preference (and why they’re fair) can be found here:

Participation (or participating preferred) enables the investor to receive both their liquidation preference and their % allocation of the remaining funds to be distributed. Brad Feld discusses the concept and gives a concise description here:

The reason that liquidation preferences and participation matter is that they may affect how much you make when you sell your business as much or more than the pre-money valuation you negotiate. This is particularly true if the business is very successful, but not a “10 bagger” [A 10-bagger means that for every $1 of investment made, the VC fund receives $10 back when they sell their stake (either selling the company to someone else, or after an IPO). 10-baggers are pretty rare].

External links:

• Terms of VC endearment - Forget the valuation, what’s the deal?

• How to Negotiate a Term Sheet with a VC.  Pick your battles.

Open source Term sheets:  

Resources to save money:

Note:   Before hiring a start up lawyer,please read this post here: 

With the advent of the NVCA model documents collection , resources like the term sheet series, financings (especially early-staged deals) are largely cookie cutter.

More "open source documents":   Early stage venture firm Y Combinator which has funded over 102 young startups, has “open sourced” the legal documents that they provide to their startups to use as they seek additional funding beyond what they’ve gotten from Y Combinator. The documents were created with their law firm, Wilson Sonsini Goodrich & Rosati and are available here.  The goal, says Y Combinator cofounder Paul Graham, is to help young startups avoid at least some of the legal costs associated with that first round of financing. The lawyering fees don't vary much based on the size of the round, and so a significant portion of small rounds can go directly to the lawyers on the deal. Companies are routinely forced to pay the legal bills of the investors, too, making the situation worse.

VENTURE CAPITAL FINANCING DOCUMENTS?  link here :  A "template" set of model legal documents for venture capital investments put together by a group of leading venture capital attorneys. The model venture capital financing documents consist of:

• Term Sheet
• Stock Purchase Agreement
• Certificate of Incorporation
• Investor Rights Agreement
• Voting Agreement
• Right of First Refusal and Co-Sale Agreement
• Management Rights Letter
• Indemnification Agreement

Term Sheet Archives

link here

Links from KookyPlan

see our discussion on Venture Capital 

and  raising capital - ideas for the entrepreneur 

• Legal services for startups
  like the term sheet series that I co-wrote with my partner Brad Feld and just the sheer number of trained experts in the field, financings (especially early-staged deals) are largely cookie cutter. Big cost: &nbs…
  Brian D Butler edited 22 hrs ago
• term sheets
  Contents: Term Sheet (negotiation with VC's) When you do get to a term sheet, valuation is important, however the terms are equally, if not even more important. Although there are many key terms, l…
  Brian D Butler edited 18 secs ago
• Board of Directors
  value, short term consulting roles as needed. Board members should be compensated for their efforts. At the minimum, their travel expenses should be paid. Most entrepreneurial companies should set up an option …
  brian edited 7 mos ago
• raising capital - ideas for the entrepreneur
  Negotiating Term Sheets, Exit Strategies, and more.. Table of Contents: Find Venture Capital money see Global Directory of Funding (which includes consultants and posting …
  Brian D Butler edited 4 mins ago
• entrepreneur
  Negotiating Term Sheets, Exit Strategies, and more... Table of Contents: Get inspired, share ideas The first key to any new innovation or new business model is to ge…
  Brian D Butler edited 22 hrs ago
• business valuation
  control. The term "economics" refers to the end of the day return the investor will get and the terms that have direct impact on such return. The term "control" refers to mechanisms which allow the investors to either a…
  Brian D Butler edited 1 mo ago
• Venture Capital Method of Valuation
  cover near-term, negative free cash flows. But more importantly, the standard techniques of discounting cash flows does not take into consideration the multiple financing rounds at different required rates of return. &n…
  Brian D Butler edited 1 mo ago
• Presenting your plan to Venture Capitalists
  the first term sheet Time is on your side Exlusivity and expirations are tactics Key Secondary terms - Liquidation preferences: 1 times is good, 3 times is bad The details matter Be prepared to walk away:…
  Brian D Butler edited 1 wk ago
• stock options
  series on Term Sheets which cover stock options (and plenty of other issues) that are more geared for company founders. Over the course of this series, I’ll touch on (in no particular order): How options…
  Brian D Butler edited 1 mo ago
• Private equity
  looking at long-term investments (because the discount rate compounds and makes it difficult to pay back). But, competitors (foreigners) with lower WACC are able to look at longer-term investments, and be more pat…
  Brian D Butler edited 23 mins ago
• Finance
  What long term investments should the company pursue? (capital budgeting decision) 2. How can cash be raised for these investments? (capital structure decision for a firm. 3. How much short-term cash does th…
  Brian D Butler edited 1 mo ago
• capital structure
  use long term or short term debt, and in what percentage. This decision looks at the "right-hand side of the balance sheet"....ie debt and equity side. When looking at the financing of a company, it is comm…
  Brian D Butler edited 2 mos ago
• mezzanine debt
  20% The term mezzanine is derived from the Italian word meaning half, in the middle or lower. Subordinated Mezzanine Debt: see info here: see cost of capital, (WACC) for more in…
  Brian D Butler edited 1 mo ago
• Venture Capital
  became a term of mild derision, and venture capitalists were left with egg on their collective face. Despite this market readjustment, and the generally bearish environment of the early 21st century, venture capital con…
  Brian D Butler edited 24 mins ago
• Angel investor valuation method
  reneurs Price term sheet PE and venture capital in Emerging Markets Private equity Public funding - IPO Securities Laws Silicon Valley Valuations and internet companies Venture Capital…
  Brian D Butler edited 1 mo ago
• Choosing which venture capital firm to send your plan
  companies Price term sheet issuing shares Abiding by Securities Laws Presenting your plan to Venture Capitalists Video clip How to Raise Money from VCs * great, fun…
  Brian D Butler edited 1 mo ago
• invest
  companies Price term sheet issuing shares Abiding by Securities Laws Presenting your plan to Venture Capitalists Video clip How to Raise Money from VCs * great, fun…
  Brian D Butler edited 1 mo ago
• Valuations and internet companies
  companies Price term sheet issuing shares Abiding by Securities Laws Presenting your plan to Venture Capitalists Video clip How to Raise Money from VCs * great, fun…
  Brian D Butler edited 1 mo ago
• duration
  example). The term duration has a special meaning in the context of bonds. It is a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows. It is an import…
  brian edited 8 mos ago
• equity
  financial terms, the equity holders have "contingent claims" on the total value of the firm. I.e they get the residual value of the firm after the bondholders are paid. If the value of the firm is less…
  brian edited 7 mos ago
• Global Directory of Funding
  Lauderdale Florida VC Intermediary, LLC Private Equity Plantation Florida GreenLeaf Investment Management and Counsel Venture Association Boca Grande Florida Easton Hunt Capital Partners, L.P. Venture Capital Miami…
  Brian D Butler edited 1 wk ago
• raising money
  companies Price term sheet issuing shares Abiding by Securities Laws Presenting your plan to Venture Capitalists Video clip How to Raise Money from V…
  Brian D Butler edited 2 mos ago
• cash flow
  ultimately determined by its ability to generate cash flows (see business valuation discussion) …
  brian edited 7 mos ago
• conflicts of interest between shareholders and managers of corporations
  Shareholders determine the board of directors by voting. The board then selects managers, so shareholders indirectly affect the management selection. 2. Stock options are given to management so that they hav…
  Brian D Butler edited 1 mo ago
• dividends
  accounting terms, you debit retained earnings (decreasing it) and you credit common stock or paid in capital accounts (increasing them for the same amount). What it does is that it indicates to investors that there i…
  brian edited 1 yr ago
• short term finance
  Short Term Finance: Focus on current assets / current liabilities (impact in 1 year or less). This is in contrast with long term finance (capital budgeting, dividend policy and capita…
  brian edited 8 mos ago
• Financial Services Industry
  banking is a term for banking, investment and other financial services provided by banks to private individuals disposing of sizeable assets. The term "private" refers to the customer service being rendered on a more pe…
  Brian D Butler edited 4 wks ago
• Silicon Valley
  the long-term prosperity of both (Winslow 1996). But it is not only the research universities that partake in industry relations; community colleges contract with local companies to teach their employees while …
  Unknown User edited 6 mos ago

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