|
TERM |
PRE "dot com bubble" |
POST "dot com
bubble"
|
|
Valuation |
$15-$100 million pre-money |
$3-$10 million pre-money |
|
Investment Amount |
$5-$30 million |
$2-$10 million |
|
Number of
Investors |
Single VC investor |
At least 2 VC investors |
|
Closing Cycle |
1-2 months |
3-4 months |
|
Closings |
Single tranche investment |
Milestone-based tranches |
|
Dividends |
Non-mandatory, non-cumulative 8% per year |
Mandatory, cumulative, payable in kind 15% per year |
|
Liquidation
Preference |
1Xpurchase price, plus participation rights to 3X |
3X purchase price, plus participation rights with no
cap |
|
Redemption |
None |
At option of holders after 5 years at
purchase price accrued dividends |
|
Automatic Conversion |
Upon Qualified IPO of $50 million, no price limit |
Upon Qualified IPO $25 million, and
at least 5X purchase price |
|
Antidilution Protection |
Standard broad-based weighted average adjustment |
Full ratchet adjustment for a period;
then weighted average |
|
Board Composition |
2 VC’s; 2 Common; 1 Outsider |
Same |
|
Protective Provisions |
Investor approval of: senior securities, sale of
company, payment of dividends, liquidation, change of rights |
Investor approval of senior or pari
passu securities, sale of company, payment of dividends, change of rights,
change of business, incurrence of debt over specified limit, annual budgets
and variances, acquisitions of other businesses, grant of exclusive rights
in technology, appointment or termination of CEO |
|
Pre-emptive Rights |
Right to maintain pro-rata ownership in later
financings |
Right to invest 2X pro-rata ownership
in later financing |
|
Most Favored Nations Treatment |
None |
Right to get any more favorable terms
granted in later financings |
|
Pay to Play Provisions |
Often used; preferred loses anti-dilution protection
if don’t participate in later financing at lower price |
More common now; preferred
automatically converts to common if don’t participate in later
financing at lower price |
|
First Refusal Rights |
Right to purchase any shares proposed to be sold by
employees |
Right to purchase any shares proposed
to be sold by any shareholder |
|
Co-Sale Rights |
Right to sell alongside any founder that sells
shares |
Right to sell alongside any
shareholder that sells shares |
|
Drag-Along Rights |
None |
Right to force all shareholders to
sell company upon board and majority shareholder approval |
|
Forced Sale |
None |
Right to force board to sell company
after 5 years if no IPO |
|
Founder Vesting |
Standard 4-year vesting with some up-front vesting |
Moving to 5-year vesting |
|
Employment Agreements |
None |
Employment agreements for key
founders |
|
Representations and Warranties |
From company only |
Some reps and warranties from
founders individually re IP etc |
