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Nice analysis, especially the highlighting of the effective veto power over acquisitions in the protective provisions.

To nitpick, I think Agarwal's wording about the liquidation preference gives the impression the term sheet implements what's called 'fully participating' preference, where even after collecting the preference amount, they also share in the remaining money.

IANAL, but I think the wording actually implies a 'non-participating' preference: series AA can take the preference amount, or convert to common and share pro-ratably with commons, but not both.

To picture the difference: take Agarwal's example of selling 10% for $10K. But then imagine the company is sold for only $110K. With fully-participating preferred, I believe the investor gets their $10K liquidation preference, then also 10% of the remaining money, for a total of $20K. With non-participating, they could take the $10K liquidation preference, but then they would share none of the rest with the common. Instead they will choose to convert to common and get 10% of the total, $11K. (Someone please correct me if I'm wrong.)

Ah, dammit. You're right. It is non-participating convertible preferred, as specified by 2(c) of the ARAI. (It's been a really long time since I've seen regular convertible preferred.)

I've fixed that section. (If I were still in banking, I'd call it a "clarification.")

You get mad karma points.

Well, Agarwal says the remaining is split on an "as converted" basis which implies non-participating preferred. So it seems right to me!

Definitely should be clarified in the article, though. I had no clue what as converted meant despite some casual research into common terms. I doubt people totally new to term sheets would have a clue about participation based on what's there now.

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