setting the deal athens #01 march 2015 - terms explained

Setting the Deal

Setting the Deal Athens -‐ 21 March 2015

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Setting the Deal

a successful Startupper +

his Legal Advisor

What is this event?

a seasoned Venture Capitalist

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Setting the Deal

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Disclaimer

- Real investor, real entrepreneur, real lawyer

- Not a real company, not a real investment

- Virtual term sheet, negotiation simulation

- Participants actions may vary from real-life situation

- NOT advising on investment choices and/or negotiating strategies

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Agenda

19:00 Welcome / Introduction

19:05 – 19:35 Explanation of Basic Terms

19:35 – 20:35 Setting the Deal on Valuation, Liquidation Rights, Vesting, Protective Provisions

20:35 – 20:55 Q&A

20:55 – 21:00 Wrap-up

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The TERMS

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2 types of shares. Preference shares and common shares.

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Negotiation on 4 basic terms

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#1Valuation

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2 types of valuations. pre-money and post-money

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Postmoney = premoney + amount of cash invested

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Investors get:

Cash invested

Post money valuation

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Example: Company is worth €1 million pre and raises €500K.

•  How much is post-money valuation?

•  What % do investors own?

€1m + € 500K = €1,5 million

€ 500K /€1,5million = 33.3%

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#2 Liquidation preferences

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Specify who gets paid first in event of liquidation (like sale of company)

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2 important things. The actual preference and participation

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Preference: A certain multiple of the original investment is returned to the investor before the common stock receives any payment.

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Example: •  Investor has invested 1M for 30% with a

liquidation preference 3X. •  Company is sold for 4M.

Without preference he would get 30%*4M = 1,2M

With 3X preference he gets 3X1M = 3M

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Participation: three varieties of participation:

•  full participation •  capped participation •  non-participating

[more investor-friendly]

[more entrepreneur- friendly]

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#3 Managers’ Stock Vesting

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Vesting means that instead of founders getting their % immediately, they get it regularly over some period

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If founders have 50% of company with a 4 year vesting, this means that after 1st year they have 50%/4 = 12,5%, after 2nd year 25% etc…

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#4 Protective provisions

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Protective provisions grant the investors the right to veto or block certain corporate actions. Examples: strategy, sale of company, change of CEO

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The rationale for these provisions is to protect the investors (minority shareholders) from the majority stockholders.

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Not working? Try https://youtu.be/iWbeDBm6nRk

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The players

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MODERATORS

POGKAS Demetrios, Startupper.gr

KALLIAGKOPOULOS Nikos, Randstad Innovation Fund

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ENTREPRENEUR

PAPADAKIS Giannis, Pollfish

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LEGAL ADVISOR OF ENTREPRENEUR

ANTONIOU Nayia, N. Antoniou & Associates

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VENTURE CAPITALIST

TRACHANIS Spyros, Odyssey Venture Partners

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START NEGOTIATION

32

START NEGOTIATION

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VALUATION

Pre-Money Valuation: The Original Purchase Price is based upon a fully-diluted pre-money valuation of €3,000,000 and a fully‑diluted post-money valuation of €4,000,000 (including an employee pool representing 10% of the fully‑diluted post-money capitalization).

Investors: InvestorVentures. Shares 25%, €1,000,000

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LIQUIDATION PREFERENCES

Liquidation Preference: In the event of any liquidation, dissolution or winding up of the Company, the proceeds shall be paid as follows:

(full participating Preferred Stock): First pay two times the Original Purchase Price plus accrued dividends on each share of Series A Preferred. Thereafter, the Series A Preferred participates with the Common Stock pro rata on an as-converted basis.

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MANAGERS’ STOCK VESTING Vesting of Managers’ Shares: 100% of the shares directly or indirectly held by a Founder

shall be subject to a: reverse quarterly vesting over a period of four years with a one year cliff, with a compensation in the amount of the unvested shares; nominal value in case of a bad leaver event and in the amount of the portion of the minimum of either the most recent financing round or current market price in case of a good leaver event.

"Good Leaver" means any employee shareholder who ceases to be employed as a result of death or permanent incapacity, summary dismissal when the dismissal is found to have been wrongful or constructive, or whose contract of employment is terminated in circumstances where he is not in breach of his contract. "Bad Leaver" means any employee shareholder who is not a Good Leaver.

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PROTECTIVE PROVISIONS AND VETO RIGHTS

In addition to any other vote or approval required under the Company’s Charter or Bylaws, the Company will not, without the written consent of the holders of at least 75% of the Company’s Series A Preferred, either directly or by amendment, merger, consolidation, or otherwise:

…

Protective Provisions:

Matters Requiring Investor Director Approval:

The prior written approval of both the Series A Directors will be required to:

…

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Questions?

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Wrap up

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Thanks

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setting the deal athens #01 march 2015 - terms explained

Small Business & Entrepreneurship