|
Term |
PRE "dot com bubble" |
POST "dot com bubble"
|
|
Valuation |
$15-$100 million pre-money |
$3-$10 million pre-money |
|
Investment Amount |
$5-$30 million |
$2-$10 million |
|
Number of Investors |
Single
VC
investor |
At least 2 VC investors |
|
Closing Cycle |
1-2 months |
3-4 months |
|
Closings |
Single tranche investment |
Milestone-based tranches |
|
Dividends |
Non-mandatory, non-cumulative 8% per year |
Mandatory, cumulative, payable in kind 15% per year |
|
Liquidation Preference |
1Xpurchase price, plus participation rights to 3X |
3X purchase price, plus participation rights with no
cap |
|
|
|
Redemption |
None |
At option of holders
after 5 years at purchase price accrued dividends |
|
Automatic Conversion |
Upon Qualified IPO of $50 million, no price limit |
Upon Qualified IPO $25
million, and at least 5X purchase price |
|
Antidilution Protection |
Standard broad-based weighted average adjustment |
Full ratchet adjustment
for a period; then weighted average |
|
Board Composition |
2 VC’s; 2 Common; 1 Outsider |
Same |
|
Protective Provisions |
Investor approval of: senior securities, sale of
company, payment of dividends, liquidation, change of rights |
Investor approval of
senior or pari passu securities, sale of company, payment of dividends,
change of rights, change of business, incurrence of debt over specified
limit, annual budgets and variances, acquisitions of other businesses, grant
of exclusive rights in technology, appointment or termination of CEO |
|
Pre-emptive Rights |
Right to maintain pro-rata ownership in later
financings |
Right to invest 2X
pro-rata ownership in later financing |
|
|
|
Most Favored Nations Treatment |
None |
Right to get any more
favorable terms granted in later financings |
|
Pay to Play Provisions |
Often used; preferred loses anti-dilution protection
if don’t participate in later financing at lower price |
More common now;
preferred automatically converts to common if don’t participate in
later financing at lower price |
|
First Refusal Rights |
Right to purchase any shares proposed to be sold by
employees |
Right to purchase any
shares proposed to be sold by any shareholder |
|
Co-Sale Rights |
Right to sell alongside any founder that sells
shares |
Right to sell alongside
any shareholder that sells shares |
|
Drag-Along Rights |
None |
Right to force all
shareholders to sell company upon board and majority shareholder approval |
|
Forced Sale |
None |
Right to force board to
sell company after 5 years if no
IPO |
|
Founder Vesting |
Standard 4-year vesting with some up-front vesting |
Moving to 5-year
vesting |
|
Employment Agreements |
None |
Employment agreements
for key founders |
|
Representations and Warranties |
From company only |
Some reps and
warranties from founders individually re IP etc |
|
→
Venture Financing Funnel
→
Venture Financing:
Key Documents
→
Startup Business Plan
|
