Dealing with VCs What is seriously negotiable

1
Dealing with VCs What is seriously negotiable?

• Dr. Ed Mlavsky Chairman Founding Partner
• September 16, 2008

2
The Term Sheet - from the Lead Investor

• How much for how much
• How much from Lead Investor
• Post deal, how much is in the ESOP
• How much do new investors share in the dilution
• Type of share
• Preferred (vs. Common)
• Annual dividend _at_ 8
• Participating preferred terms
• Cap on preferences
• Seriously negotiable Y Yes N No ?
  Kaha Kaha

Y
N/?
Y/?
N/?
N
N
Y
Y
3
The Term Sheet - (Contd)

• Standard clauses Boilerplate (usually not
  worth negotiating)
• Vetoes
• Registration rights
• Misc.
• No shop (Entrepreneurs hate this one)
• A no-shop clause
• Duration of no-shop

N
N
Y
4
The Term Sheet - (Contd)

• Share and Option Vesting
• Vesting by Founders
• but standard is 30 vests immediately,
• the rest over 3-4 years
• Sale of shares by Founders
• Need permission of Preferred
• Modern trend allow Founders to sell part of
  their holdings at a new financing round.
• (MAKES SENSE Encourages key people to resist
  early offers for outright sale of the company)
  

Y
N
5
The Term Sheet - (Contd)

• The Board
• BUT NOTE THAT BEST BOARDS ARE SMALL.
• FOR A STARTUP, OPTIMUM IS 5, e.g.
• The CEO
• One Founder
• Two Investors
• One Industry Expert (Outsider)

Y
6
Life the way it is

• For Successful Repeat Entrepreneurs,
• Everything is Negotiable
• For 1st timers see previous slides!