Mon, 25 July 2022
Startup Boards -- Early Exit FAQ
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
It’s easy to get into a startup investment, but it can be hard to get out.
An Early Exit deal structure gives the investor a way out. The TEN structure uses redemption rights.
What is a Redemption Right, and how does it work?
A Redemption Right gives the investor or startup a right to redeem an ownership stake in the company.
What are the terms?
The TEN Capital Early Exit term sheet includes a 3X redemption right, giving the investor the sole discretion over their right to 3X their investment at the three-year mark from the date of the investment.
Investor Sole Discretion means each investor makes their own decision.
Near the three-year mark, the investor will have 30 days to decide if they are going to take the redemption or refuse it.
If the investor takes the redemption, the payback will commence at the three-year mark.
If the investor refuses the right, then the convertible note will mature, and the investment will convert to equity.
In that case, the investor will then receive a return when the business reaches a liquidity event which is primarily by an acquisition of the company.
Investors who take the redemption right will work out a payback plan with the startup.
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