Weitere ähnliche Inhalte Ähnlich wie Venture Capital Financing (20) Mehr von Valla and Associates, Inc., P.C (15) Kürzlich hochgeladen (20) Venture Capital Financing3. Financing is a Staged Process
Common Stock
Bootstrapping
Friends and Family
Angels: Equity, Warrants, Convertible Notes
“Series Seed”
Series A Preferred (B, C, etc.)
Liquidity Event
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4. Structure the Initial Process
Correctly
Securities Laws Filings
Price must be the same: Tax Consequences of
Valuation at Early Stages
Protection of IP
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5. U.S. vs. Italian Process
Informal
Private
No statutory auditors
No minimum capital requirements
No legal impediments to ongoing losses
Limited bankruptcy laws risks
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6. Convertible Debt
Bridge loan before financings
Useful when the company does not have a
satisfactory valuation
Risks of repayment feature
No minimum capital but insolvency changes the
rules
Better include a provision to force conversion
© 2013 Valla & Associates, Inc., P.C.
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7. Warrants
Warrants: option to purchase company shares
at a price within a set period
“Kicker” to increase the potential investment
value
Warrants increase in value as the value of the
underlying shares increase in relation to the
exercise price
Usually issued with bridge financing
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8. Series Seed
“Open source”, simpler, standard
No antidilution, redemption, dividend
protection, price based anti-dilution,
registration rights
Will acquire same rights as the next series of
Preferred
Smaller financings
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9. Alternatives: Strategic Investors
Stage of Product Development: Scalability
Aims Differ
Not Interested in Helping the Company Grow
Conflict of Interest: greater returns from
commercial rights than growth
Expertise
Could affect future VC financings
© 2013 Valla & Associates, Inc., P.C.
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10. Venture Capital
Identify the Right VC
Due Diligence
The Risk of “Finders”
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11. Preferred Stock (Series)
Why Preferred?
Liquidation Preference
Preserve a low common stock value for option grants
(ratio 1:4 to 1:8):
Common Stock was bought at cheap price, $0.10
to founders.
If Common were sold at same time at $5.00 to
VC, tax consequences for founders.
No limits to Preferred/Common ratio
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12. “Clean Up”
Prior to Investing:
Document Employees
Founders Relationships
Securities filings
Confidentiality and Invention Agreements
Prepare for VC’s due diligence
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13. Sample Term Sheet
Binding Provisions:
No Shop
Confidentiality
Applicable law
ALL other provisions are not binding
See examples: NVCA (http://www.nvca.org)
© 2013 Valla & Associates, Inc., P.C.
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14. A Typical Term Sheet
Valuation/Number of Shares/Price
Liquidation Preference
Redemption
Conversion
Antidilution
Voting Rights
Protective Provisions
Vesting of founders' stock
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15. Valuation/Price
Pre-money/Post-money valuation: Option pool shuffle
How are your shares valued?
8M pre-money valuation, 6M shares outstanding
$8M pre-money ÷ 6M existing shares = $1.33/share, right?
WRONG: The share price is $1.00
WHY? Read the term sheet: “The $8 million pre-money
valuation includes an option pool equal to 20% of the postfinancing fully diluted capitalization.”
$8M pre-money ÷ (6M existing shares+2M options )= $1/share.
Pre-money valuation includes a large unallocated option
pool for new employees -- lowering pre-money valuation
Hence, develop a hiring plan
© 2013 Valla & Associates, Inc., P.C.
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16. Dividends
No expectation of dividends, but:
Cumulative Dividends: __ % cumulative dividend accrues over
time, whether or not the company declares it - PLUS participation
with Common Stock on an as-converted basis.
Non-cumulative Dividends: “An amount equal to $[_____] per
share of Series A Preferred when, as and if declared by the
Board”
PIK (payment-in-kind) dividends. Company option to pay
accrued and unpaid dividends in cash or in common shares
valued at fair market value.
Usually payable on liquidation or redemption, not conversion
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17. Liquidation Preferences
Liquidation Preference: 1x or more
Participating Preferred:
Full participation
Capped participation
Non-participating
19%
14%
67%
Preferred has the option to convert into Common
Interaction of various series: First pay B, then A, then
all; all participate equally, etc.
Deemed Liquidation: good times and bad times; IPO?
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18. Redemption
Optional (Company call):
Company can repurchase stock at original price (plus
dividends) if Investors don’t convert to Common after x years
Mandatory (Investors Put)
Guaranteed exit path for VC if Company is “successful
enough”
Investor can force Company to repurchase shares after x
years – beware of redemption premium
But, Company must have funds legally available
22% of all VC financings in 2012, 35% in down rounds
© 2013 Valla & Associates, Inc., P.C.
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19. Voting rights/Protective provisions
Preferred usually votes with Preferred on an “as converted basis”
Vote by Series/Class
Usually right to vote on x directors
Applicable law provides for rights for certain events (merger or
creation of senior preferred stock)
Investors often add additional actions
Terminate if Series holds less that minimum % of original
purchase (5-20%)
Voting Switch - gain majority from an event of default
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20. Voting rights/Protective provisions
„ Amend Articles / Certificate (or Bylaws)
Alter rights, preferences of Series A, affect Series A
Increase or decrease authorized shares Preferred
Stock
Merger / acquisition, sale of substantially all assets
Liquidation / dissolution
Declare or pay dividend
Change authorized number of Board Directors
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21. Conversion
Preferred always has a conversion to Common feature,
but loses all preferred privileges
Optional Conversion
Holders can convert to Common at any time
Automatic Conversion – must convert to Common
if:
IPO at least $ __(size + price)
2/3 of preferred (or majority) elect to convert
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22. Conversion
Conversion Ratio is initially 1:1
Anti-dilution protection: conversion price adjustment, not
automatic
“Event-Based” changes: Stock splits, stock dividends, reverse
stock splits
“Price-Based” changes: Dilutive Financing (financing at lower
price per share)
Retain same percentage ownership
Exclusions
Pay to Play: must keep “paying” (participating pro rata in future
financings) in order to keep “playing” (not have his preferred
stock converted to common stock, lose antidilution)
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23. Anti-Dilution
Protect investors if company issues equity at a lower
valuation than preferred
Full Ratchet
Weighted Average: Broad Base: more favorable
Weighted Average: Narrow Base: less favorable to
company
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3%
92%
4%
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24. Exclusions from Dilution
Carve-outs from anti-dilution:
Options grants to employees, consultants (negotiate
all or only authorized pool)
Warrants to lenders (approved by majority vs.
unanimous board approval)
Warrants to service providers, strategic partners
Shares issued in mergers / acquisitions
Exercises or conversions of current stock or grants
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25. Other Terms:
Vesting of founders’ stock, acceleration
Right of first refusal: new issuance and transfers by
founders
Employee pool
Co-sale agreement (drag along, tag along) : force a sale
Registration rights
Demand registration rights
Piggy-back
S-3
Expenses
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27. Financing Documentation
Legal and business due diligence
Draft definitive agreements (purchase
agreement, Certificate of Incorporation, voting
agreement, investor rights agreement)
Prepare closing deliveries (Schedule of
Exceptions)
Consents, opinions, government filings
© 2013 Valla & Associates, Inc., P.C.
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28. Bottom Line
(Almost) anything can be negotiated
Pick your battles: ƒ Liquidation Preferences,
Protective Provisions, ƒ Board Control
Make sure you understand what you’re signing
© 2013 Valla & Associates, Inc., P.C.
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29. Thank you!
In bocca al lupo!
Valla & Associates, Inc., P.C.
1990 N. California Blvd., Suite 1060
Walnut Creek, CA 94596
USA
E-mail: majda.barazzutti@vallalaw.com
Phone: +1 925 705 7623 Fax: +1 925 705 7629
www.vallalaw.com
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