Thu, 21 July 2022
Startup Boards -- Early Exit Deal Structure
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Investing in startups is risky. One way to reduce the risk is to define the exit.
TEN Capital’s Early Exit term sheet is a convertible note with a 3X in 3-year redemption right at ‘investor sole discretion’ to provide the investor an option for an early exit.
The investor receives 3 times their investment 3 years from the date of investment.
So, $100K in yields $300K out.
A 3X return in year three from the initial investment yields an IRR of 44%.
‘Investor sole discretion’ means each investor makes their own choice about continuing in the investment or not at year 3.
If the investor takes the early exit, then a payment plan is worked out.
There are several benefits, such as:
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Music courtesy of Bensound.