The Regional Finals are upon us! See here for Term Sheet Central and here for Palo Alto Round 1!
1. Price (Valuation) vs. 2. Pay to Play
Price (Valuation): The amount of funding received in the round. Can be referred to in aggregate ($40M) or price per share ($6/Share). This can be used to determine pre/post money valuation.
Pay to Play: Investors will have the option to purchase their “pro rata” share in a future financing (i.e. Right of First Refusal), but if they choose not to participate (Pay), the remainder of their allotment of ownership will be converted from preferred to common stock (preventing them to Play).
C:V.’s Chief Term-ologist’s Take: Price looks to continue its hot streak in this competition but will be met with resistance by Pay to Play. In the end, we feel that Price should be able to advance on its ability to heavily impact all future rounds of a firm even though Pay to Play’s ability to allow only the truly committed investors to remain preferred shareholders should not be forgotten.
Outcome: Price advances to the Term Sheet Madness Finals! Get the scissors out! (Well, in this tournament, it’s probably more fitting to break out the pen/DocuSign link…)
Do you find yourself wondering which terms and triggers in a term sheet or financing negotiation are most effective or powerful? Losing sleep over whether or not to accept fully participating liquidation preferences with a full ratchet provision (hint: don’t)? Want to get a better understanding of the true power rankings of what is valuable and what is lawyer “boilerplate”?
If so, then you are in for a treat! In honor of “March Madness” we have decided to create our own version of the madness, C:V. style! Over the coming days and weeks, we will be holding our first ever “Term Sheet Madness” where we will be matching up some of the key terms and triggers in a financing against one another and having them battle it out until a victor is crowned!
In the process, we will also give an explanation (as best we can, we are neither VC’s nor Lawyers…) on what the term means and why it is so often (or not often) used/in vogue/SAT word eligible.
Early “term-ologists” have Price and Liquidation Preference as early favorites, but Board Seats have made an impressive run in their conference tourney and is by far the hottest term in the field….
Term Sheet Central:
Palo Alto Regional
Palo Alto Finals
Term Sheet Madness Finals