Thursday, February 15, 2007

Term Sheet Terms: On Good Terms

We've been actively fund raising again, so I think it's time to revisit some of the terms you will encounter in term sheets. Term sheet terms are largely market driven and reflect the availability of capital during the time you raise funds. If you're raising money in a pullback environment (like I did back in 2001-2002) time frame the terms are going to be fairly conservative and not very friendly to existing share holders. If there are a lot of investments being made, then money supply exceeds demand creating competition for deals and friendly terms to existing share holders. I think we've swung back to somewhere in the middle from the lean times of my last company and so, happily, terms are looking better these days.

The interesting negotiating terms are:

  • pre-money valuation
  • option pool size
  • liquidation preferences
  • dividend
  • seniority to previous round
  • no shop clause
  • redemption
  • drag along rights
  • anti-dillution
I'll post on a few of these in the coming days

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