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

2. Limitations to the Scope of a Syndicate Another red flag is investors who try to dissuade an entrepreneur from opening a round or increasing it in size in order to accommodate other interested VCs.

The calculation of pre-money value should be the result of multiplying the total number of shares outstanding, including warrants and issued options, by the price per share that is offered in the term sheet. The post-money valuation is determined by adding the total amount to be raised in equity in the round of financing contemplated by the term sh

Those investors, having agreed to finance the company on different terms from the common, ask for certain rights, in terms of influence. This is done to compensate for what is typically a minority position at a higher price than common or to retain a level of influence over whether the company entertains future financings, on what terms those finan

The most Investor Favorable clause implements what is called a full ratchet, which means that the effective cost and ownership percentage in the company for the preferred investor who invested at a given price in a prior round adjusts so that the cost and ownership percentage to the old investor is as if that investor invested in the new round side

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

FIGURE 6 (4) Conversion: [Investor Favorable, Middle of the Road and Company Favorable are the same.] The holders of the Series [A] Preferred shall have the right to convert the Series [A] Preferred, at any time, into shares of Common Stock. The initial conversion rate shall be 1:1, subject to adjustment as provided below. (5) Automatic Conversion:

3. Milestones Milestones can be a reasonable approach to constructing a term sheet; they can also be a serious red flag.

possible red flags any term sheet may have. The three biggest are as follows: 1) Underfinancing One red flag is if an amount of money offered by an investor is lower than the dollar amount the entrepreneur feels he or she reasonably needs

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