Startup Funding Espresso -- Diligencing the Terms

Diligencing the Terms 

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

In diligencing the startup’s term sheet, check the following points:

Is the valuation or cap rate appropriate for the stage of the company? 

If it’s out of line, then other terms such as liquidation preferences may be needed.

What dilution will the investors go through, such as options pools and follow-on funding?

It’s important to understand who pays for the options pool -- the founders, the investors, or both.

What rights do the investors have over employee compensation, follow on funding, exits, and other major decisions?

The investors need a say in how the company is managed with regards to compensation and raising additional capital. 

What rights do the investors have for participating in future rounds of funding?

For the deals with big return potential, the investors need the right to participate in follow-on rounds.

Are there any redemption rights or dividends in the deal by other investors?

It’s important to know what rights other investors may have over the company’s cash.

Check these points and how they will impact the return.


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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