Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In negotiating a terms sheet, there are several key elements to keep in mind.
Valuation is the biggest hurdle as it sets equity ownership.
Key terms that often come into play include the following:
Liquidation preferences - if the investors feel the pre-money valuation is too high, they may ask for a 1 or 2x liquidation preference.
Investing founders share - investors want to know the team will remain in place for the first few years and will require them to re-earn their shares.
Redemption rights - if the business goes sideways, some investors will look to prepare for an early exit.
Consider convertible debt for an initial terms sheet and move to equity when you find the right lead investor.
There are many investors who want to be in the deal but aren’t going to do the work for leading the round.
A key criterion for a lead investor is an interest in equity and a willingness to invest greater than $100K. This generates enough motivation to properly develop the terms sheet.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
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