Startup Funding Espresso - Key Terms

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

There are many terms used in terms sheets but there are only a few that have a significant impact.

Here are the key ones:

• Liquidation Preference -- a liquidation preference gives the shareholder their initial investment back first, before splitting the rest of the proceeds. 
• Non-Participating Preferred -- the investors receive preference over the common shareholders.
• Anti-Dilution -- investors retain their ownership percentage through subsequent rounds of funding. 
  If they maintain their full ownership, then this is called Full-Ratchet Anti-Dilution.
• In a Weighted Average Anti-Dilution, the founders get diluted but not as much.
• Pay to Play -- a pay-to-play clause incentivizes investors to continue investing in subsequent rounds. If not, they lose some portion of their ownership stake.
• Warrants -- a security that gives the holder the right to buy stock over a certain timeframe and at a specific price.

These are key terms to look for in a terms sheet.


Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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