Term Sheet Price by Brad Feld

  • Source link: https://feld.com/archives/2005/01/term-sheet-price.html
  • TL;DR: Brief advice regarding price that covers option pools, warrants, and best practices for negotiating price
  • How helpful?: 4/5 
  • Topic Tags: term sheets, price, option pool, warrants
  • Relevant questions addressed:
  • What are some key concepts to know about when negotiating price on a term sheet?
  • Summary bullet points
  • Venture funds really care about two things when doing investments:
    • Economics
      • End of the day return investor will get, terms that have direct impact on such a return
    • Control
      • Mechanisms which allow investors to control the business/veto certain decisions
  • OPTION POOL:
    • Both company and investor want to make sure the company has enough reserved shares of equity to motivate its workforce
      • While large option pool means more options are available for employees, it also effectively lowers the pre-money valuation
  • WARRANTS
    • Like with stock option allocation, lowers valuation for the company.
    • Create lots of unnecessary complication later down the road
  • Best way to negotiate price: have multiple VCs interested in investing in the company
  • Follow up links