The Funded Publishes First Round Term Sheet by Michael Arrington

  • Title:
  • Author: Michael Arrington
  • Source link: https://techcrunch.com/2009/08/23/the-funded-publishes-ideal-first-round-term-sheet/
  • TL;DR: A good term sheet should not have participation with preferred stock, have a 1X liquidation preference, and single trigger vesting acceleration on acquisition.
  • How helpful?: 4/5 
  • Topic Tags: term sheet, typical structure, basic
  • Relevant questions addressed:
  • What are some basic terms that I should look for in a term sheet?
  • Summary bullet points
  • Adeo Ressi (founder of The Funded) released a basic term sheet for use by investors and founders.
    • Protect founders and reduce legal fees
  • Key Terms
    • Elimination of participation with preferred stock
      • When there is participation, VCs get their liquidation multiplier back AND are able to participate pro-rata in a sale
    • 1x liquidation preference
    • Single trigger vesting acceleration on acquisition
      • VCs like double trigger because it’s easier to sell a company whose founders are locked in
  • Having a standardized sheet like this means huge legal cost savings
  • Follow up links