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Navigating Your
Series A Round
Presentation to
September 2015
Stephanie L. Zeppa, Esq.
Co-Leader, Social Media and Video G...
Unknowingly Giving Away the Farm
▪ How? Liquidation Preferences
▪ Liquidation rights determine the allocation of the
proce...
Example: Participating Preferred Stock
▪ Figure 1a:
Fully participating
▪ Figure 1b:
Participating with a 3x
cap
▪ Figure ...
Diluting Stock Causes Destablization
▪ How? Full Ratchet Anti-Dilution Used Instead of
Weighted-Average
▪ Conversion price...
Example: Full Ratchet Anti-Dilution
▪ Full Ratchet
– Series A Adjustment
• Conversion price of Series A
becomes $0.50/shar...
Founders Are Beholden to Inept CEO
▪ How? Not Having Board Designee 

Separate from CEO
▪ The right to appoint the common ...
Questions?
Stephanie Zeppa
Partner, Emerging Growth
Silicon Valley / San Francisco
Direct: (650) 815.2646
Cell: (415) 342-...
Representative Videogame Clients
8
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YetiZen Speaks: Top 3 Term Sheet Mistakes Founders Make

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Slides for YetiZen Speaks: Top 3 Term Sheet Mistakes Founders Make presented by Stephanie Zeppa.

To watch a video of the complete talk where you will learn the 3 terms startup founders agree to only to regret later please visit https://youtu.be/GCdvoEZYeNY?t=1s

Veröffentlicht in: Business
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YetiZen Speaks: Top 3 Term Sheet Mistakes Founders Make

  1. 1. Navigating Your Series A Round Presentation to September 2015 Stephanie L. Zeppa, Esq. Co-Leader, Social Media and Video Games Group Sheppard Mullin Richter & Hampton LLP Top Three Term Sheet Mistakes Founders Make Presented by: Stephanie L. Zeppa, Esq. Sheppard Mullin Richter & Hampton LLP
  2. 2. Unknowingly Giving Away the Farm ▪ How? Liquidation Preferences ▪ Liquidation rights determine the allocation of the proceeds when a start-up is sold. 1
  3. 3. Example: Participating Preferred Stock ▪ Figure 1a: Fully participating ▪ Figure 1b: Participating with a 3x cap ▪ Figure 1c: Nonparticipating Source: Michael Klausner and Stephen Venuto, Liquidation Rights and Incentive Misalignment in Start-up Financing, Cornell L. Rev., vol. 98, 1407 (2013). 2
  4. 4. Diluting Stock Causes Destablization ▪ How? Full Ratchet Anti-Dilution Used Instead of Weighted-Average ▪ Conversion price of the preferred stock outstanding prior to a “down round” is reduced to a price equal to the price per share paid in the dilutive financing. 3
  5. 5. Example: Full Ratchet Anti-Dilution ▪ Full Ratchet – Series A Adjustment • Conversion price of Series A becomes $0.50/share • The number of common shares issuable upon conversion becomes: (2,500,000) * ($1.00/$0.50) = 5,000,000 shares • Series A conversion rate of 2:1 – Series B Adjustment • Conversion price of Series B becomes $0.50/share • The number of common shares issuable upon conversion becomes: (2,000,000) * ($2.00/$0.50) = 8,000,000 shares • Series A conversion rate of 4:1 ▪ Weighted Average – Series A Adjustment • (7,000,000 + 1,000,000) (7,000,000 + 2,000,000) = $1.00 * (8/9) = $0.88 • The number of common shares issuable upon conversion becomes: (2,500,000) x ($1.00 / 0.88) = 2,812,500 shares • Series A Conversion Rate of 1.125:1 – Series B Adjustment • (7,000,000 + 500,000) (7,000,000 + 2,000,000) = $2.00 * (7.5 / 9) = $1.67 • The number of common shares issuable upon conversion of Series B becomes: (2,000,000) x ($2.00 / $1.67) = 2,400,000 shares • Series B Conversion Rate of 1.20:1 4
  6. 6. Founders Are Beholden to Inept CEO ▪ How? Not Having Board Designee 
 Separate from CEO ▪ The right to appoint the common 
 stock designee may be subject to 
 additional requirements. ▪ Example: – The typical Board of Directors of a post-Series A company is composed of: • 1-2 investor designees • 1 common stock designee • 1 CEO director • 1 at-large director 5
  7. 7. Questions? Stephanie Zeppa Partner, Emerging Growth Silicon Valley / San Francisco Direct: (650) 815.2646 Cell: (415) 342-0927 Email: szeppa@sheppardmullin.com 6
  8. 8. Representative Videogame Clients 8

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