Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
There are many terms in a standard terms sheet for investing in a startup.
Six terms have a direct impact on the return the investor receives. They are as follows:
- Pre-money valuation is the biggest factor in determining the investor’s return. This is often the term receiving the most attention in negotiations.
- Liquidation preference is increasingly being used to protect early investors as it gives them a return first before other investors.
- Options pool is a key consideration with regards to who pays for it. A founder-friendly terms sheet has the investors paying for it, while an investor-friendly terms sheet has the founders paying for it.
- Protective provisions include electing board members who can influence operational decisions such as approving future fundraising rounds.
- Co-sale rights and drag-along rights give the investor options for exiting early.
- Finally, dividends -- not common in early-stage fundings, are a source of returns to the investors in long-term holdings.
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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