

Decoding the term sheet - iterable
http://blog.thesecretofraisingmoney.com/termsheet/
Hey - made this post to explain the term sheet. Would love any feedback.
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chkpt
_“Major investors will have the right to participate on a pro rata basis in
subsequent issuances of equity securities

Explanation:

Allows current investors to retain their current ownership percentage in
future financing rounds.”_

Is this right? My understanding was that pro-rata = if an investor owns (say)
20% of a company, then they get to participate with up to 20% of the total of
any subsequent financing. This may or may not maintain them at their original
20%.

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wkneepkens
It is right, example:

US$100 "company", with one investor owning 20% (US$20) New round of US$50 and
the investor uses pro-rata right of 20% . He takes US$50 * 0.2 = US$10 out of
the round. Now owns US$30 worth of equity in the US$150 valued company = 20%

Obviously valuations, various investors, various rounds, convertibles, etc.
can complicate matters.

Lastly an investor could also only take part of his 20% right and would then
get partially diluted.

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JacksonGariety
Not sure if quoting The Social Network and showing screens from it helps your
credibility.

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thejteam
The other day I was at a presentation on pitching investors and the presenter,
a veteran entrepreneur and investor, recommended having your own set of term
sheets ahead of time to present to investors. Is this a good idea? At least
for pre-VC investment, which was what this presentation was primarily about.

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iterable
Hey - by 'pre VC investment' I assume you mean raising a first round of tens
or low hundreds of thousands - basically enough to hack out the first version
of the product. In this case, yes, you should generate your own term sheet,
and make it very reasonable (we give you some guidelines in the article) so as
not to deter investors. One reason for this is that due to your stage and the
amount you are raising, you are unlikely to have a 'lead' investor in the
classical sense. Also - you should definitely raise this round as a
convertible note. It is cheaper, faster, and much easier to 'raise as you go'.

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iterable
Happy to answer any fundraising questions as they arise - hit me at
contact@thesecretofraisingmoney.com - name is Michael

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iterable
Hey - made this post to explain the term sheet. Would love any feedback.

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lmm
I haven't finished reading yet but the page itself is really beautiful.
(Except the flying thing on the right, which is annoying).

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iterable
Thanks! Really appreciate it.

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bjoernlasseh
thx Michael

