Term Sheets & Valuations: A Line by Line Look at the Intricacies of Term Sheets & Valutions (Bigwig Briefs)

FIGURE 14 (13) Right of First Refusal: Investor Favorable: The Investors shall have the right in the event the Company proposes to offer equity securities to any person (other than securities issued pursuant to employee benefit plans or acquisitions, in each case as approved by the Board of Directors, including the director elected by holders of th

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FIGURE 7 (6) Anti-dilution Provisions: Investor Favorable: The conversion price of the Series [A] Preferred will be subject to a full ratchet adjustment in the event that the Company issues additional equity securities (other than the reserved employee shares described under “Employee Pool”) at a purchase price less than the applicable conversion p

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FIGURE 8 (7) Voting Rights: [Investor Favorable, Middle of the Road and Company Favorable are the same.] The Series [A] Preferred will vote together with the Common Stock and not as a separate class except as specifically provided herein or as otherwise required by law. Each share of Series [A] Preferred shall have a number of votes equal to the nu

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FIGURE 12 (11) Information Rights: Investor Favorable: So long as an Investor continues to hold shares of Series [A] Preferred or Common Stock issued upon conversion of the Series [A] Preferred, the Company shall deliver to the Investor audited annual financial statements, audited by a Big Five accounting firm, and unaudited quarterly financial sta

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FIGURE 11 (10) Special Board Approval Items: Board approval will be required for: 1. Hiring of all officers of the Company. 2. Any employment agreements (approval by a majority of disinterested Directors, or a Compensation Committee when established). 3. Compensation programs including base salaries and bonus programs for all officers and key emplo

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FIGURE 9 (8) Protective Provisions: Investor Favorable: The consent of the holders of at least two thirds of the Series [A] Preferred shall be required for any action that (i) alters or changes the rights, preferences, or privileges of the Series [A] Preferred; (ii) increases or decreases the authorized number of shares of Series [A] Preferred; (ii

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The following formula on the next page is used to determine the new conversion price for the preferred when a weighted average adjustment is brought into effect: In applying this formula, consider the example used in the full ratchet discussion: a $2 Conversion Price for Preferred A that must be adjusted when a subsequent Preferred B round of 4 mil

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FIGURE 10 (9) Board Composition and Meetings: Investor Favorable: The size of the Company's Board of Directors shall initially be set at [three]. The holders of the Series [A] preferred, voting as a separate class, shall be entitled to elect two members of the Company's Board of Directors, the holders of the Common Stock shall be entitled to elect

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The Total Common Equivalent assumes that preferred stock and common as well as options and warrants are treated equally in valuing the company. This approach to valuing the company is factually accurate at the time of a financing but may not, when considering preferred stock, reflect the value of preferred stock if converted to common at some point

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