

Term sheet questions - throwawayftw

I'm a founder of a relatively hot start-up. We'll be break even by the end of the year, and we have ongoing dialogues with huge customers (who are also potential acquirers). We've been working on closing our series A for the last 3 months or so. This is my first start-up and therefore my first time going through the fundraising process.<p>We just received our first term sheet for a small series A from an institutional investor, and while we're happy with the valuation and liquidation preference, we're not sure about a couple of the other terms (they want participating preferred shares and 8% dividends).<p>So my question is this: when I hear about a YC start-up raising their series A to the tune of 1M on 3M pre-money or 1M on 4M pre-money, what is standard for the other significant terms? In particular, for the median YC company:<p>Are these deals participating preferred?
What is the liquidation preference?
What are the dividends associated with the deal (cumulative, non cumulative, what %)?<p>Any insight is much appreciated!
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garry
I'm not a lawyer, and you should ask your lawyer this. This is why experienced
startup lawyers are valuable to startups. They know what is normal and what is
not, and can protect you. If you don't have a startup lawyer, you should get
one ASAP. Email me (details in my profile) if you need a referral.

Participating preferred happens in about 35% of deals, but generally this is
not a good one for the entrepreneur. [http://www.quora.com/How-common-are-
participating-preferred-...](http://www.quora.com/How-common-are-
participating-preferred-stocks-in-the-startup-VC-world)

These terms are best avoided if you have other options.

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jaxn
I am not a YC company, but I would be happy to share my experience. Email me
so that I don't have to create a throwaway account too ;)

