Watch this video and comment now: http://capitalmatchpoint.com/content/part-ii-find-investors-term-sheets
Hosted by Dave Dambro, The Capital MatchPoint, 770-433-8250, http://capitalmatchpoint.com
This is part 2 of a 3-part series where we’re going to talk a little bit more about term sheets. In this section we’re going to discuss the needs of the investor with regard to the term sheet. Now, the structure of capital transactions such as those that would involve private equity or even angel investors are more reflective of the needs and the preferences of the parties involved. So you are going to see a lot of differences between term sheets and you should have at this point already consulted with and retained a good securities attorney to get guidance on which suits you best. From the investor’s perspective, his needs are pretty clear. First and foremost is return on investment is what he’s thinking about so you’ll see various different items addressing what his expectations are. Also the risk level that the investor is taking, you’ll find some mitigators in there as well. Liquidity is a big concern as well so regardless of what structure you’re going with look for clauses that are going to address his rights to liquidity. Now your company’s valuation at exit, there may be a benchmark set for that. And here is one that you’ll definitely see, the investor rights. In the event you are headed for a market liquidity event such as an IPO, the investor’s going to want to be first in line to some extent, so look for that. The level of participation in the management of the company; think about this, having been on both sides of the table for many years, I can tell you that as an entrepreneur we tend not to want to give up control. Plan on giving some up. You’ve got to cede some of your control in exchange for investment, whether it be a seat on the board of directors or a voting right, you will be bringing in a partner of sorts and these are your financial partners. The next item is rights in future rounds of financing. Typically an investor gets in with a company and you meet your benchmarks, they’re going top want to be there for you and do what they do best which is financing, so look for language on that. And opportunities to provide future rounds of financing are easier for the investor group so you’ll see language on that.
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