Sep 29, 2020
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.
Let’s go startup something
today.
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