Triblr.com by Vlad Stan

Today, I’m presenting the last part of the series of articles about the legal VC terms.

Restriction on Sales
This term sheet provision states that the company has a right of first refusal on all transfers of common stock, which if not exercised by the company will be transferred to the investors.

Proprietary Information and Inventions Agreement
Refers to the fact that every founder, employer and consultant should sign an intellectual property transfer agreement with the company trying to get VC funding.

Co-Sale Agreement
It means that the founders may not sell, transfer or exchange their shares unless each Investor has an opportunity to participate in the sale on a pro-rata basis. This only matters until the IPO.

Founders Activities
This means your funding VC wants you to be spending 100% (actually 120%) of your time and attention on the company. If you are working on other companies, but not disclosing this, you have violated the terms of the agreement and you don’t want that before even starting. There are some exceptions to this previsions, but they are very rare.

No Shop Agreement  (also Unilateral or Serial Monogamy)
It is a provision that commits the entrepreneur not to look for other VCs while negotiating with another. In Brad Feld’s words, “At some level, the no shop agreement reinforces the handshake that says “ok – let’s get a deal done – no more fooling around looking for a better/different one.”

Indemnification
It is a provision that states that the company will indemnify board members and investors for any claims brought against them by any third party (including any other shareholder of the Company) as a result of the financing.

Assignment
The assignment provision allows venture funds to transfer shares between funds and make distributions to their investors.

Read, also, the first and the second part of the article.

Let’s continue with our second lesson of VC language. Today, we’ll explore some more of the frequently used terms of the VC term sheets. Following the links provided upon each definition, you’ll find broader explanations for the terms.

Redemption Rights
Rights to force the company to purchase shares (a “put”) and more infrequently the company’s right to force investor to sell their shares (a “call”). A Put allows one to liquidate an investment in the event an IPO or public merger becomes unlikely.

Conversion
Refers to the fact that preferred stock is convertible into common stock. This allows the buyer of preferred to convert to common stock should he determine on a liquidation that he is better off getting paid on a pro rata common basis rather than accepting the liquidation preference. It can also be used in certain extreme circumstances whereby the preferred wants to control a vote of the common on a certain issue.

Conditions Precedent to Financing
It is a paragraph in the term sheet that you should definitely pay great attention to, as you could not have a deal at all, even if you signed the term sheet, if your company doesn’t meet these conditions.

Vesting
Typically, stock and options will vest over four years – which means that you have to be around for four years to own all of your stock or options. If you leave the company earlier than the four year period, the vesting formula applies and you only get a percentage of your stock. As a result, many entrepreneurs view vesting as a way for VCs to “control them, their involvement, and their ownership in a company”.

Information Rights
It means that the company will have to deliver regularly to the investors, until the IPO, such documents like Company’s annual budget, audited annual and unaudited quarterly financial statements.

Registration Rights 

These are provisions that allow investors to sell stock via the public market (IPO). On the other hand, registration rights are often the only exit vehicle that, as a practical matter, the minority shareholders can compel. Read also on registration rights.

Right of First Refusal
The right of first refusal gives the major investor, in this case, which can be clearly defined in terms of number of purchased shares, the right to buy particular shares before any other proposed buyer is accepted.

Voting Rights
Refers to the fact that preferred stockholders vote like the common stockholders in the affairs of the company, with some exceptions. Anyway, all the heavy rights are contained in other sections, such as the protective provisions, you have to pay special attention to.

Employee Pool
The employee pool section clarifies the capital structure and specifically call out the percentage of the company that will be allocated to the option pool, allocated to directors, officers, employees and consultants financing.

Read, also, the first part and the next part of the article.

There’s a lot of resources on how to pitch VCs, available out there, but perhaps you are asking yourself what should your pitch for angel investors contain. 


Photo by Cest

Based on my experience and on tons of materials that I read, this is the structure I choose:

1. The team - It’s about you and your team, about your experience and motivation to do the project.

2. The problem - What is the problem you want to solve? How big it is (the market) and how this problem is solved today.

3. The solution - Do you have a disrupting solution to solve the problem? If you have some traction and some user feedback it’s awesome.

4. Persona - Who is your customer and how do you plan to tackle him. What are the acquisition channels? Think about scalability here.

5. The market - By reach (no of personas) or by transactions (amount of money spent on that market)

6. Revenue and economics - Even if it’s not so clear yet, list some ideas how to make money that you want to test with your potential customers.

7. Funding plan and milestones - How much money do you need and at what valuation? What do you need the money for? Define some metrics and goals for success.

8. Exit plan - What do you want to do with your company? Do you want to sell it to a strategic investor or IPO? Define the persona for the strategic investor if we choose this path.

If you want to read more about this subject you should read this book:

Pitching Hacks: How to pitch startups to investors

These days I will post a new post about how to get an intro to an investor.

If you are an online entrepreneur you may be probably asking yourself how many pitches you need in order to get funded for the first time.

Here is how it usually works:

1. The Friends and Family Pitch
   Once you have an idea about your product pitch your friends and family about it. Listen to them and feel how excited they are about your idea.
2. The Elevator Pitch
   If your friends and family are willing to support you and your new idea, make a very short pitch that describes the problem, the persona and your solution.
3. The Public Pitch
   If you have some good feedback about your elevator pitch you can make it public. Find events where you can present yourpitch and get feedback.
4. Coffee Shop Investor Pitch
   If you have good results with your public pitching, you can pitch investors in a friendly environment.
5. The Partners Pitch
   If they liked it, they will send you their term sheet and they will invite you to pitch their partners as well.

If you can convince all the partners, you’re done.