Category: Venture Capital
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Venture Capital Bridge Extension Round Structures
Thinking about all the potential bridge extension rounds that will need to be closed in late 2024 and 2025, and here are my thoughts on the structure: If you do equity, and assuming it’s the same valuation, you could do an ‘extension round’ which essentially builds off the prior preferred round. This would increase the…
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U.S. VC Process for Indian Startups
As an India-based startup, closing on U.S. venture capital is similar to doing so if your company was completely US-based, with a few notable differences. In the past several years, I’ve represented several India-based startups through venture capital financings. To name just a few, clients have included Freshworks (formerly FreshDesk), WizRocket, and Shopalyst. They, along…
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Unintended Consequences of a Long Additional Closing Period
Some financing rounds close on one specific day. That is, all investors fund the full investment amount of the financing round on the same day. This is usually the case when a financing round has a small number of investors who can coordinate with the startup on a closing date (wires, exchange signature pages, etc.).…
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When Majority of the Board Doesn’t Mean Control
In conversation at various startup events, I hear a common but potential misconception relating to “control” and the board of directors. For example, I often overhear “it’s great that the founders only had to give up 1 board seat, so they still retain control of the board/company.” But board composition is not necessarily the sole…
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Avoid Offensive Liquidation Preferences
In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., founders, option holders, etc.). The amount of the…
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Term Sheet Purgatory
There’s a lot of advice about (1) how to attract VCs, and (2) how to negotiate a venture capital term sheet. Both sets of advice tend to ignore the gap between an investor’s expression of investment interest and your startup’s receipt of the term sheet. I refer to this waiting period as “term sheet purgatory.”…
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Interview with Mike Brown Jr. of AOL Ventures
I had the chance to chat with Mike Brown Jr., Founder and Partner at AOL Ventures, a few weeks ago. I’ve known Mike for a few years now and during the conversation I asked if we could turn the chat into a formal interview for this blog. He graciously obliged and the following Q&A about…
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Series A Startup CEO Salary
A startup’s Series A financing shouldn’t be a large liquidity event or salary payday for the startup’s founders. While a startup typically receives millions of dollars in a Series A, if too much of that $$$ flows guaranteed to the founders, various incentives get out of whack. Not all startup founders understand this tenet. Case…
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What is a Fully-Diluted Basis?
The concept of a fully-diluted basis is not difficult. A fully-diluted basis just means the assumption of the highest potential amount of common stock a startup will have outstanding, regardless of vesting provisions and assuming all options and other securities like convertible notes are converted into common stock. That is, assume the highest share count…
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Is a Term Sheet Binding?
A term sheet is an outline of the deal terms that helps frame the contemplated transaction for both parties. Term Sheets for financings and acquisitions are usually not binding. However, it is quite common to see various sections of the term sheet binding, including: –No Shop or Go Shop Clauses: Can a party shop the…