Earlier this week we posted Some Issues to Consider When Negotiating the Term Sheet: The Series A Round, so we thought it would be necessary to provide some of the granular data that our Intelligence Database offers. Take a moment to check out some of the trends surrounding Early Stage Valuations and Deal Terms in our Report. Included in the report is an analysis of of over 500 companies and 500 deals, including some gazelles like Mixpanel, The Honest Company, and Beepi.
VC Experts – Early Stage Deal Term Report is FREE, please don’t hesitate to pass it along.
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Joseph W. Bartlett
1. Should there be a no shop, no solicit clause in the term sheet, which will be binding? From the investor’s standpoint, this is often a preferred way to proceed. It avoids the contingency that the Company will “shop” the terms offered by, in this case ABC, LLC, with other potential investors and pick the winning number. This is viewed as a problem for investors, because they will be wasting their time and money on a process which they did not realize would be, in effect, an auction. But what are the enforcement remedies if the Company sneaks around the investor’s back and whispers the pitch material to another prospect, then let’s the no shop time period run out? Is a no shop essentially a matter of good faith?
Investors should be well aware of the terms and conditions when investing in private companies. What happens if there is a down round? What provisions can stop new investors from taking over a cap table? Understanding the economic impact of these terms can help protect your investment. ACE Portal’s Co-Founder and CFO, Carl Torrillo, interviewed Ross Barrett, Co-Founder of VC Experts, on what private investors need to know about terms and conditions. Take a moment and see why it may be “your deal, but my terms”.
Joseph W. Bartlett
The fund raising process for most of the private equity funds … venture, leveraged buyout, secondary and others … is an arduous business. Alan Patricoff remarked several years ago that after he split from Apax to form Greycroft it took him, a Hall of Fame venture capitalist, three years (as I recall) to reach a final closing on the fund he was sponsoring.
Accordingly, it is customary for funds to employ experienced placement agents to assist in the fund raising process. The onus, of course, is on the principals of the fund to display and defend their track record or records in the business and manage face-to-face meetings during the various road shows they undertake. The placement agent, however, is useful as a time saver and a focus group, if you will … arranging meetings, gauging interest and commenting on the placement materials, pointing out the hits, the runs, and the errors in order to enable the fund managers to upgrade the same. In the process of reviewing a placement agent agreement for a recent client, it occurred to me that there needed to be some thought given to one of the conventional sections in the placement agent agreement … the indemnification provisions.