Preparing a Venture Capital Term Sheet: Key Terms for Investors and Companies Seeking Investment Valuation, Capital Structure, Board Composition, Protective Covenants, Exit Terms Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1. WEDNESDAY, SEPTEMBER 15, 2021 Presenting a live 90-minute webinar with interactive Q&A George Colindres, Partner, Perkins Coie LLP, Los Angeles
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Preparing a Venture Capital Term Sheet: Key Terms for Investors and Companies Seeking InvestmentValuation, Capital Structure, Board Composition, Protective Covenants, Exit Terms
The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.
WEDNESDAY, SEPTEMBER 15, 2021
Presenting a live 90-minute webinar with interactive Q&A
George Colindres, Partner, Perkins Coie LLP, Los Angeles
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FOR LIVE EVENT ONLY
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FOR LIVE EVENT ONLY
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• NVCA released its “Model” Legal Documents in 2003• Forms can be found at https://nvca.org/model-legal-documents/• Primary Documents:
- Term Sheet- Amended and Restated Certificate of Incorporation- Preferred Stock Purchase Agreement- Investors’ Rights Agreement- Right of First Refusal and Co-Sale Agreement- Voting Agreement
• Price and Valuation• Liquidation Preference• Anti-Dilution: Full Ratchet vs. Weighted Average• Board Composition• Drag-Along Rights• Protective Covenants• Information and Registration Rights• Participation Rights• Rights of First Refusal and Co-Sale
Founders 4,000,000 Shares 18.2%Old Option Pool 2,000,000 Shares 9.1%Series A Preferred Stock 4,000,000 Shares 18.2%Option Pool Increase 2,000,000 Shares 9.1%Series B Preferred Stock 10,000,000 Shares 45.5%“Fully-Diluted” 22,000,000 Shares 100.0%
Sale of the Company for $20,000,000
1X Liquidation Preference, Participating Preferred, and Series B Senior to Series A:Because the Preferred is Participating, it does not need to make the decision whether or not to convert: • Series B – First $10MM• Series A – Next $2MM• All Shares – Split $8MM ($0.364/Share)
Founders 4,000,000 Shares 18.2%Old Option Pool 2,000,000 Shares 9.1%Series A Preferred Stock 4,000,000 Shares 18.2%Option Pool Increase 2,000,000 Shares 9.1%Series B Preferred Stock 10,000,000 Shares 45.5%“Fully-Diluted” 22,000,000 Shares
Sale of the Company for $20,000,000
1X Liquidation Preference, Non-Participating Preferred, and Series B Senior to Series A:Because the Preferred is not Participating, it needs to make the decision whether or not to convert. If Series B and Series A do not convert:• Series B – First $10MM ($1.00/Share)• Series A – Next $2MM ($0.50/Share)• Founders/Options (12MM Shares) – Split $8MM ($0.667/Share)
Founders 4,000,000 Shares 18.2%Old Option Pool 2,000,000 Shares 9.1%Series A Preferred Stock 4,000,000 Shares 18.2%Option Pool Increase 2,000,000 Shares 9.1%Series B Preferred Stock 10,000,000 Shares 45.5%“Fully-Diluted” 22,000,000 Shares
Sale of the Company for $20,000,000
1X Liquidation Preference, Non-Participating Preferred, and Series B Senior to Series A:Because the Preferred is not Participating, it needs to make the decision whether or not to convert. Here is it optimal for the Series A to convert, but not for the Series B to convert:• Series B – First $10MM
(Series B Does Not Convert Because $1.00 > $0.909)• Series A/Founders/Options (12MM Shares) – Split $10MM ($0.833/Share)
George Colindres is a partner with the Corporate practice and Emerging Companies & Venture Capital practice in the firm's Los Angeles and San Diego offices.
George acts as outside general counsel for clients in a diverse array of industries, including food, biotechnology, pharmaceuticals, medical devices, digital health, internet of things, social networking, e-commerce, online advertising, online gaming, software, hardware, telecommunications, and real estate. His work for these clients includes:
• Corporate governance, including entity formation and capital structuring and equity incentive plan matters
• Commercial agreements
• Employment and compensation matters
• Preferred Stock and other equity financings
• Convertible promissory note (bridge) financings
• M&A transactions
George also represents venture capital firms, strategic investors, angels, and other investors in connection with making investments in portfolio companies and liquidity events related to such portfolio companies.
George Colindres
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The Financing ProcessStep One:
• Forming and Organizing a Corporation
• Management Team• Board of Directors• Board of Advisors• Assigning the Intellectual Property• “Clean” is Better than “Complex”
PREPARATION
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The Financing ProcessStep Two:
• Understand the Business Model• Test the Model• Describe the Model• Understand the Competition• Business Plan, Executive
Summary, PowerPoint
BUSINESS DESCRIPTION(SOMETIMES STEP ONE)
• Due Diligence on Potential Investors
• Creating a “Buzz”• Identifying a Lead Investor• Forming a Syndicate
SHOPPING THE COMPANY
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The Financing ProcessStep Three:
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The Financing ProcessStep Four:
• Defending the Business Model• Educating the Investor• Key References• Management Diligence
BUSINESS DUE DILIGENCE
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The Financing ProcessStep Five:
• Valuation• Key Terms• Understand Which Terms are
Negotiable• Spend the Time to Get the Terms
Right
TERM SHEET
• Capital Structure• Stock and Option Vesting• Employment and Consulting
Agreements • Key Contracts• Intellectual Property
LEGAL DUE DILIGENCE
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The Financing ProcessStep Six:
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The Financing ProcessStep Seven:
• Amended and Restated Certificate of Incorporation
• Preferred Stock Purchase Agreement• Investors’ Rights Agreement • Right of First Refusal and