What VCs Want

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You Want Money

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VCs Want

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YouTube and Sequioa $1.65 Billion

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Sequoia’s Portfolio

IRR(Portfolio)

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What this Means for YOU

(vcwear.com)

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And now for something completely different…

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So What Happens if they Like You?

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What exactly is a term sheet?

 A term sheet is an offer to invest in a company.

 It is tabled by investors of all stripes: angels, VC’s, strategic investors

 It is intended only to outline the basic points of an agreement in principle around which such binding legal documentation may be structured

 It is not the final document on the subject.

 Terms sheets are negotiable

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Basic Terms

Date

Investors

Price

Pre-Money Valuation

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Company Growth Forecast

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Rationalized Forecast

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Long Term Financing Strategy

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Pre-Money Value

Pre-Money (Yours)

Invested Capital (Theirs)

+

Post-Money (Mostly Theirs)

=

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Building Enterprise Value

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Preferred Shares

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IP Assignment

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Employee Stock Option Plan (ESOP)

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Dividends (Not Yours)

Time

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VC

Liquidation Preference (Not Yours)

LP LP

VC

YOU

YOU

Good Times

Bad Times

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More rights and privileges (Not Yours)

THEM

YOU

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60% of Preferred Share holders must agree to:

any sale of assets

merger

any amendment of charter or by-laws

reclassification of shares

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…and they also must agree to:

any material change in the terms of

employment of Key Employees (as defined

below)

any material change in the Business, any material change in accounting policy or change of year end

all non-arm’s length transactions including the appointment of any employees who

are not acting at arm’s length with any directors, officers or shareholders of Newco

the creation of the ESOP and any increase in the

ESOP, any change in the number of directors

Blah

www.blah.com

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Shareholders’ Agreement … Information rights

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Board of Directors

VC VC You You

Collective

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Board Meetings

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KEY EMPLOYEE AGREEMENTS

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STOCK RESTRICTION AGREEMENT

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Weasel words – there will be conditions

Due diligence

Approval by the Investors’ respective Investment

Committees and/or Boards of Directors, as necessary

Prior agreements and waivers

Usual representations and warranties

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Exclusivity and Acceptance

  Any VC giving you a term sheet will want exclusivity for a period of time. You can’t shop it around.

  You’ll get a deadline for acceptance

  You can negotiate some terms

  Watch out what you ask for

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The Golden Rule

The man with the gold rules

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