

Terms of Yuri Milner/SV Angel’s $150K investment into YC companies - yokumtaku
http://www.startupcompanylawyer.com/2011/01/31/what-are-the-terms-of-yuri-milnersv-angels-start-fund-150k-investment-into-y-combinator-companies/

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brudgers
The terms appear to be structured so that founders have a long runway and
fewer financial distractions leading to better products and better customer
development which leads to better valuations and therefore better angel exits.
It appears to have all the elements to create a virtuous cycle.

Aside:The longer term somewhat reminds me of the approach Microsoft takes with
BizSpark.

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sachinag
This is the first time I've seen the optional conversion into Series AA at a
$5 million valuation. If it's optional at the company's option, that
eliminates the one and only risk I could think of: the lender calling back the
principal + interest of the note. At 2% interest, that's just another 3.12%
dilution to the founder(s) on top of YC's 2-6% (source:
[http://www.google.com/search?sourceid=chrome&ie=UTF-8...](http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=150*1.44#sclient=psy&hl=en&q=\(150*\(1.02\)%5E2\)%2F5000&fp=949ae495dbb11742)).

So, unless I'm missing something, worst case is you get into YC, you get
$165K, and you still own ~90% of your company. That's a no-brainer deal.

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jacoblyles
IANAL, but I would guess that "optional maturity conversion" means the
investor can choose to convert at those terms if the two-year window expires
without a prior conversion being triggered. So if the startup doesn't raise a
$1 million financing round in the first two years, the investors can grab 3%
of the company at their option.

It would be strange if the company would get to choose when the investors'
debt converts.

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yokumtaku
Yes, it's the investor option to convert upon maturity into Series AA, not the
company option to force conversion.

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sachinag
OK, so in practice, what happens if the company can't raise a round? Do they
just return what they can to the fund and close up the doors?

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yokumtaku
The note stays outstanding. Generally speaking, there's no good reason for the
investor to want to convert into equity, as debt is better in a bankruptcy
situation.

Some companies might return money to investors before shutting down.

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jacoblyles
This answers the early sale question. In the event of a sale before the note
is converted through other means, the investors can convert at $5 million
valuation. That could be a lot of upside for them, though I expect this will
not be a common case.

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clare
According to the article: Optional change of control/IPO conversion: into
common stock at the lesser of (A) fair market value (based on change of
control or IPO), or (B) $5M valuation. I have to agree with Yokum, it is hard
to find a better deal than this.

