The Ideal First Round Term Sheet (Continued) by Fred Wilson

  • Source link: https://avc.com/2009/08/the-ideal-first-round-term-sheet-continued/
  • TL;DR: This is essentially a response to the standard term sheet that The Funded published and Tech Crunch did a write-up about.
  • How helpful?: 3/5 
  • Topic Tags: term sheets, quick closing, standard documents, The Funded
  • Relevant questions addressed:
  • What are some of the pro’s and con’s of The Funded’s proposed term sheet?
  • Summary bullet points
  • 1X liquidation preference
    • This is great for first round financing. It would only make sense to want more than this in later stages
  • Elimination of participating preferred
    • Wilson likes straight preferred but thinks there are times when participating preferred makes sense
    • Valuation gets bidded up so that investors can’t make a return on a short term exit, participating preferred could be issued so that investors still get return on their capital in case of early exit
      • If this is used, it should go away at a multiple of price paid (3x)
  • Single trigger acceleration
    • Wilson doesn’t like this provision
    • Prefers double trigger with partial single acceleration
      • Double trigger: company is acquired and you are fired
      • Partial acceleration on single trigger: company is acquired and you remain at the company
  • Follow up links