Typical VC Deal Terms, Richard Kimball, Nutter, Alistair Bird, Simmons & Simmons, Richard Corley, Blake, Cassels & Graydon
Preferred stock, 1:1 conversation ratio to common typical for early deals
Liquidation preferences: pay preferred investor their preference amount which includes dividends plus any some multiplier 1x, 2x, later rounds.
15% to 20% of have multiples greater than 1
3/4 of deals seen recently have participating preferred terms:
preference amount plus participation given the conversion ration to common
capped participating preferred. usually a multiple of purchase price, 2x, 3x
incidence of participating preferred higher on west coast
Dividends: on east coast half have accruing dividends, on west 10%.
West coast terms tend to be more entrepreneur friendly than East coast terms
A weighted average formula takes into account he number of shares issued relative to the number of shares outstanding and the difference between the prince the preferred stock was issued at and the price paid in the dilutive financing.
a ratchet formula only takes into account the price
less than 20% of deals in the US include full ratchet anti-dilution. somewhat more on East coast than West Coast.
East Coast financing 70% include redemption rights.
On west coast only 1/3rd of deals have redemption rights.
creates opportunity to renegotiate deal
pay to play provision.
punishes investor for failing to invest in later rounds
2 kinds of punishments
Direct conversion into common. Increasingly used.
Board and/or Observer rights
Option pool on pre-money basis-no dilution for preferreds
Protective provisions - can't take certain actions without approval
Information rights - audited financials
Registration rights - public offering
Preemptive rights - maintain prorata share
Right of first refusal and co-sale - on shares that founders hold
Founder restriction agreements
Key man and D&O insurance