Seattle Ventures Early-Stage Financing & Term Sheet Negotiation


Written by Dante Martin

 

·         Linden’s has worked with many companies to help them with early stage financing and term sheet negotiation.  Linden did not have a business background when she was in school.

 

·         Angel investors are not as focused on equity as VC’s are.

 

·         Angels tend to be more patient

 

·         Although Angels are more patient, they can still be a hassle because they keep a watchful eye and want to be involved with the business

 

·         Many Angels have contacts and experience in the technology industry. They also have start-up experience.

 

·         Angels invest by themselves or in groups.  When investing in groups some Angels may act as brokers to their network of fellow angels.

 

·          If a start-up is dealing with angels it is likely that many people will see the business plan.  So, in the beginning a start up must make decisions on how secretive they need to be.

 

·         Angels are more likely to sign NDA’s

 

·         Some deals with Angels can keep a start up from getting VC funding

 

·         Venture firms can be a bigger help in operations

 

·         If a start-up has term sheet from many different VC firms from different areas then they will have more negotiating leverage.

 

·         Going to VC’s for a first round is not uncommon

 

·         NO MONEY = NO COMPANY

 

·         “If you owe the bank a little money then the bank owns you, If you owe the bank a lot of money then you own the bank”

 

·         Start-ups should issue shares to founders instead of options, to save on capital gains tax.

 

·         If the valuation of a new business is too low then it becomes difficult to incent employees

 

·         If the valuation is too high investors will be unhappy due to resulting down rounds of funding

 

·         “back-of-napkin” burn rate equation:  BURNRATE = #PEOPLE X $10,000 + SALES&MARKETING

 

·         Some investors use ratchets to compensate for a possible down round

 

·         A right of repurchase means if you get fired the business gets your stock

 

·         Registration rights: Investors  can register to sell shares on the public market

 

·         Piggyback sale rights: Investors can sell shares any time the company does.

 

·         Underwriters don’t like piggyback registration rights

 

·         Convertible debt: A loan can be converted into equity

 

·         Documentation can cost $25,000.00 on term sheets