Entrepreneurial Financing: Negotiating with Venture Capitalists: Trendsetter Incorporation. TEACHING ENTREPRENEURIAL THOUGHT & ACTION
twenty March 2012
Richard To. Bliss, PhD
Trendsetter Incorporation.
Learning Goals 1 . The entrepreneur/VC romantic relationship 2 . Experience of deal term sheets 3. Moving beyond valuation four. VC negotiations
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The Entrepreneur/VC Romantic relationship
Entrepreneur VC
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The Entrepreneur/VC Romantic relationship
• Conditions to address undesirable selection − due diligence − staging/milestones − use of descapotable preferred stocks and shares • Provisions to help monitoring/control − rights to information and board seats − employment contracts and termination rights • Provisions to enable harvesting • Security of position − anti-dilution provision − preemptive rights and right of initial refusal some
Case Discussion Questions
1 . Calculate the pre- and post-money valuations for Trendsetter under both term bedding. 2 . What would the payoffs for the founders and the VC become if Fashion leader is bought in a deal that values the organization at $10 million? $25 million? a few. What are the key differences and similarities involving the two term sheets? 5. If you were the entrepreneur and may not discuss any of the conditions in both sheet, which would you like and why? 5. Just how would you keep pace with alter the conditions in every term piece during talks with the endeavor capitalists? five
Trendsetter Incorporation. Overview
six
Term Bedsheets: Key Conditions
1 . Valuation
2 . Returns
3. Liquidation preference
5. Election of directors
several
Valuation - Mega
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Valuation - Alpha
9
Dividend -- Mega
15
Dividend - Alpha
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Liquidation Inclination - Ultra
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Liquidation Preference - Alpha
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$45
Liquidation Preference and Investor Benefit
$40 $35
Value of Ownership Share
$30
$25 $20 First: Series A $15 $10 $5 $0 $5 $10 $15 20 dollars $25 $30 $35 $40 $45 50 dollars $55 $60 $65 seventy dollars $75 Alpha: Founders Huge: Series A Mega: Founders
Venture Benefit
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