Startup Europe & TWIST Event: Understanding the Term Sheet
Post on 23-Feb-2017
417 Views
Preview:
Transcript
TransregionalWebInnovativeServices forThrivingDigital andMobile
Disclaimer
2
Let “experts” go to talk on talkshows
Just me…
3
@danybus1
Daniele Della Seta
Agenda
4
In this webinar I will explain the basics of Term Sheet, used in the VC industry. We are going to:•Answer the 4 W (What, Why, When, Who) •Translate some VC jargon in plain English (key terms used in a Term Sheet)•Describe 2 way of investing in startups (Equity vs. Convertible notes)•Present 2 industry standard contracts (with a little challenge)•Questions & Answers session
5
What?
A non-binding agreement setting forth the basic terms and conditions under which a deal will be negotiated by investors
and founders.
6
When?
It’s the first step just before the due diligence process
7
Why…
Setting the major aspects of the deal, including the expenses, avoiding misunderstanding
8
Why?
Laying the groundwork for ensuring the investment with two binding provisions: exclusivity & confidentiality
9
Who?
The parties involved are the Investors and the Founders
Key terms• Reserved matters• Lock-up• Tag-along• Drag-along• Bad & Good leaver• Non compete• Anti-dilution• Liquidation preference
10
11
Reserved matters
A list of issues that shall be validly passed with the Investor favorable vote in shareholder meetings (both ordinary or
extraordinary)
12
Lock-up
A period during which Founders shall not transfer any shares
13
Tag-along
The right of a minority shareholder (usually the VC) to join the transaction and sell – “tagging” – upon the same terms and conditions of majority shareholders (usually the founders)
14
Drag-along
The right to force a shareholder – “dragging” – to join in the sale of a company
15
Good & Bad leaver
The concept of “leavers” means shareholders who have been directors or employees of a company but have left that
employment
16
Leaver provisions
Good leaver
Bad leaver
Health reasons or redundancy
Resignation orinfringement
Provisions determine what price should be paid for the shares
Market Value(commercial value as
determined by an independent expert)
Par Value(face value of the share
or the price paid if higher)
17
Non compete
Founder can be asked not to compete with the startup in case they are let go
18
Anti-dilution
Protects an investor from dilution resulting from later issues of stock at a lower price than the original
19
Liquidation preference
How various investors' claims on dividends or on other distributions are queued and covered
20
Others…
• Pre-emption: right to participate in any future issuance of securities by the company
• First refusal: right in respect of any proposed transfer of shares
21
Types of investment
• Convertible note: short-term debt that converts into equity
• Equity investment: buying and holding of shares of stock in anticipation of income from dividends and capital gains
22
Convertible note: key terms overview
• Maturity: the date by which the loan matures.
• Interest: the rate the startup shall pay on the loan
• Conversion: the conditions under which the loan is converted to equity
• Discount: the rate to convert the loan to equity with a discount in valuation compared to new investors
• Valuation cap: the maximum valuation at which the loan will convert
23
Convertible notes: notable examples
SAFESimple Agreement for Future Equity
Developed by YCombinatorReleased open-source on March 2015
KISSKeep It Simple SecurityDeveloped by 500 Startups
Released open-source on July 2014
24
Challenge: SAFE vs KISS
• 4 types – no equity version• No maturity• No interest• No minimum financing round• Cap & Discount• Transfer rights: affiliates of the
investor only
• 1 type – available equity version
• Maturity: 18 months• Interest rate: 5%• Minimum financing round: $1
million• Cap & Discount• Transfer rights: anyone &
anytime
SAFE KISS
25
Q&A
If you have any question this is the right time to ask for!
THANK YOU
26
TWISTDigitalOnline
facebook.com/digitaltwisters@digitaltwisters
twist@digitaltwisters.com @www.digitaltwisters.com
top related