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




·         “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