Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist

Your chances of eliminating the co-sale agreement clause may be zero, but there’s no reason not to ask for a floor to it. If you or your cofounders want to sell a small amount of stock to buy a house, why should a VC hold it up? A right of first refusal on the purchase with a bona fide outside offer’s valuation as the purchase price is one thing. A

A more important thing to watch for is a multiple on the purchase rights (e.g., the “[X] times” listed). This is often referred to as a super pro rata right and is an excessive ask, especially early in the financing life cycle of a company.

We can’t opine more strongly that all warrants should expire at a merger unless they are exercised just prior to the transaction. In other words, the warrant holder must decide to either exercise or give up the warrants if the company is acquired.

If you want to create a competitive process, allow at least three to six months to raise money.

“Less is more” when it comes to an investor presentation. There are only a few key things most VCs look at to understand and get excited about a deal: the problem you are solving, the size of the opportunity, the strength of the team, the level of competition or competitive advantage that you have, your plan of attack, and current status. Summary f

For many investors, what distinguishes a company from its competitors as a compelling investment opportunity is the value of its intellectual property (IP). While some entrepreneurs and investors think the phrase “intellectual property” refers to patents, we are referring to patents, copyrights (to the code), trademarks (of the brand), and trade se

While pro rata rights are pretty typical, if you have people asking for super pro rata rights or a specific portion of the next financing, you should be careful, as granting these will limit your long-term financing options.

While you can create complex financial models that determine how much money you need down to the penny, we know one thing with complete certainty: these models will be wrong. Instead, focus on the length of time you want to fund your company to get to the next meaningful milestone.

In the executive summary, include the problem you are solving and why it’s important to solve. Explain why your product is awesome, why it’s better than what currently exists, and why your team is the right one to pursue it. End with some high-level financial data to show that you have aggressive but sensible expectations about how your business wi