TERM

THEN

…AND NOW

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