what vcs want (and why they call it 'vulture capital')
DESCRIPTION
Speaker: Charles Plant, MaRS Advisor In this lecture at we look at: * How VCs make money * What they want in return for their money * How they structure deals * And why they call it “Vulture Capital” This is part of the CIBC Presents Entrepreneurship 101 lecture series. For more information and video: http://www.marsdd.com/Events/Event-Calendar/Ent101/2009/terms-of-investments-02252009.htmlTRANSCRIPT
What VCs Want
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You Want Money
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VCs Want
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YouTube and Sequioa $1.65 Billion
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Sequoia’s Portfolio
IRR(Portfolio)
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What this Means for YOU
(vcwear.com)
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And now for something completely different…
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So What Happens if they Like You?
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What exactly is a term sheet?
A term sheet is an offer to invest in a company.
It is tabled by investors of all stripes: angels, VC’s, strategic investors
It is intended only to outline the basic points of an agreement in principle around which such binding legal documentation may be structured
It is not the final document on the subject.
Terms sheets are negotiable
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Basic Terms
Date
Investors
Price
Pre-Money Valuation
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Company Growth Forecast
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Rationalized Forecast
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Long Term Financing Strategy
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Pre-Money Value
Pre-Money (Yours)
Invested Capital (Theirs)
+
Post-Money (Mostly Theirs)
=
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Building Enterprise Value
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Preferred Shares
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IP Assignment
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Employee Stock Option Plan (ESOP)
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Dividends (Not Yours)
Time
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VC
Liquidation Preference (Not Yours)
LP LP
VC
YOU
YOU
Good Times
Bad Times
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More rights and privileges (Not Yours)
THEM
YOU
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60% of Preferred Share holders must agree to:
any sale of assets
merger
any amendment of charter or by-laws
reclassification of shares
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…and they also must agree to:
any material change in the terms of
employment of Key Employees (as defined
below)
any material change in the Business, any material change in accounting policy or change of year end
all non-arm’s length transactions including the appointment of any employees who
are not acting at arm’s length with any directors, officers or shareholders of Newco
the creation of the ESOP and any increase in the
ESOP, any change in the number of directors
Blah
www.blah.com
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Shareholders’ Agreement … Information rights
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Board of Directors
VC VC You You
Collective
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Board Meetings
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KEY EMPLOYEE AGREEMENTS
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STOCK RESTRICTION AGREEMENT
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Weasel words – there will be conditions
Due diligence
Approval by the Investors’ respective Investment
Committees and/or Boards of Directors, as necessary
Prior agreements and waivers
Usual representations and warranties
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Exclusivity and Acceptance
Any VC giving you a term sheet will want exclusivity for a period of time. You can’t shop it around.
You’ll get a deadline for acceptance
You can negotiate some terms
Watch out what you ask for
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The Golden Rule
The man with the gold rules
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