setting the deal athens #01 march 2015 - terms explained

Setting the Deal

Setting the Deal Athens  -­‐  21  March  2015  

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Setting the Deal

a successful Startupper +

his Legal Advisor

What is this event?

a seasoned Venture Capitalist

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Setting the Deal

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Disclaimer

- Real investor, real entrepreneur, real lawyer

- Not a real company, not a real investment

- Virtual term sheet, negotiation simulation

- Participants actions may vary from real-life situation

- NOT advising on investment choices and/or negotiating strategies

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Setting the Deal

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Agenda

19:00 Welcome / Introduction

19:05 – 19:35 Explanation of Basic Terms

19:35 – 20:35 Setting the Deal on Valuation, Liquidation Rights, Vesting, Protective Provisions

20:35 – 20:55 Q&A

20:55 – 21:00 Wrap-up

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Setting the Deal

The TERMS

Setting the Deal

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2 types of shares. Preference shares and common shares.

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Setting the Deal

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Negotiation on 4 basic terms

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Setting the Deal

#1Valuation

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2 types of valuations. pre-money and post-money

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Setting the Deal

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Postmoney = premoney + amount of cash invested

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Investors get:

Cash invested

Post money valuation

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Setting the Deal

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Example: Company is worth €1 million pre and raises €500K.

•  How much is post-money valuation?

•  What % do investors own?

€1m + € 500K = €1,5 million

€ 500K /€1,5million = 33.3%

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Setting the Deal

#2 Liquidation preferences

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Setting the Deal

Specify who gets paid first in event of liquidation (like sale of company)

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Setting the Deal

2 important things. The actual preference and participation

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Setting the Deal

Preference: A certain multiple of the original investment is returned to the investor before the common stock receives any payment.

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Setting the Deal

Example: •  Investor has invested 1M for 30% with a

liquidation preference 3X. •  Company is sold for 4M.

Without preference he would get 30%*4M = 1,2M

With 3X preference he gets 3X1M = 3M

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Setting the Deal

Participation: three varieties of participation:

•  full participation •  capped participation •  non-participating

[more investor-friendly]

[more entrepreneur- friendly]

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Setting the Deal

#3 Managers’ Stock Vesting

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Setting the Deal

Vesting means that instead of founders getting their % immediately, they get it regularly over some period

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Setting the Deal

If founders have 50% of company with a 4 year vesting, this means that after 1st year they have 50%/4 = 12,5%, after 2nd year 25% etc…

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Setting the Deal

#4 Protective provisions

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Setting the Deal

Protective provisions grant the investors the right to veto or block certain corporate actions. Examples: strategy, sale of company, change of CEO

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Setting the Deal

The rationale for these provisions is to protect the investors (minority shareholders) from the majority stockholders.

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Setting the Deal #SetTheDealAth

Setting the Deal

Not working? Try https://youtu.be/iWbeDBm6nRk

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Setting the Deal

The players

Setting the Deal

MODERATORS

POGKAS Demetrios, Startupper.gr

KALLIAGKOPOULOS Nikos, Randstad Innovation Fund

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Setting the Deal

ENTREPRENEUR

PAPADAKIS Giannis, Pollfish

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Setting the Deal

LEGAL ADVISOR OF ENTREPRENEUR

ANTONIOU Nayia, N. Antoniou & Associates

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Setting the Deal

VENTURE CAPITALIST

TRACHANIS Spyros, Odyssey Venture Partners

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Setting the Deal

START NEGOTIATION

32  

START NEGOTIATION

Setting the Deal

VALUATION

Pre-Money Valuation: The Original Purchase Price is based upon a fully-diluted pre-money valuation of €3,000,000 and a fully‑diluted post-money valuation of €4,000,000 (including an employee pool representing 10% of the fully‑diluted post-money capitalization).

Investors: InvestorVentures. Shares 25%, €1,000,000

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Setting the Deal

LIQUIDATION PREFERENCES

Liquidation Preference: In the event of any liquidation, dissolution or winding up of the Company, the proceeds shall be paid as follows:

(full participating Preferred Stock): First pay two times the Original Purchase Price plus accrued dividends on each share of Series A Preferred. Thereafter, the Series A Preferred participates with the Common Stock pro rata on an as-converted basis.

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Setting the Deal

MANAGERS’ STOCK VESTING Vesting of Managers’ Shares: 100% of the shares directly or indirectly held by a Founder

shall be subject to a: reverse quarterly vesting over a period of four years with a one year cliff, with a compensation in the amount of the unvested shares; nominal value in case of a bad leaver event and in the amount of the portion of the minimum of either the most recent financing round or current market price in case of a good leaver event.

"Good Leaver" means any employee shareholder who ceases to be employed as a result of death or permanent incapacity, summary dismissal when the dismissal is found to have been wrongful or constructive, or whose contract of employment is terminated in circumstances where he is not in breach of his contract. "Bad Leaver" means any employee shareholder who is not a Good Leaver.

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Setting the Deal

PROTECTIVE PROVISIONS AND VETO RIGHTS

In addition to any other vote or approval required under the Company’s Charter or Bylaws, the Company will not, without the written consent of the holders of at least 75% of the Company’s Series A Preferred, either directly or by amendment, merger, consolidation, or otherwise:

…

Protective Provisions:

Matters Requiring Investor Director Approval:

The prior written approval of both the Series A Directors will be required to:

…

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Setting the Deal

Questions?

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Setting the Deal

Wrap up

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Setting the Deal

Thanks

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