Friendly investors don’t deliver hostile termsheets 🔪 The Board of Directors 🕴🏼
Valuation is temporary, Control is forever
→ you can't divorce your investors, you can't recover control
Valuation 💲
It's an art, not a science. It's not the companies who are worth hundreds of millions, rather than Max and Marc are. Down rounds kill you. High valuations seal the exits.
Rules of Thumb 👋
- Make the Board Composition Proportional to ownership
- Independents usually aren’t
- Create a new seat for a new CEO
- Control is a one way street - from Common to Preferred
The Option Pool Shuffle 💃
Take the post-money option shares out of the pre-money $6M pre-money $4M raised 25% post-money pool $3.5M pre-money
Vesting is Testing 🦺
Earn your shares over time - only good leavers keep vested shares.
→ 4 years, some credit, single trigger, double trigger
Liquidation and Anti-Dilution 🚰
Standard is 1x, Broad-Based Weighted Average Designed to protect investors from quick flips / overpriced rounds Can change terms dramatically → potential for mischief
Protective Provisions to Protect Minority Shareholders ⛑️
Hack 1: Sale ok above a certain price Hack 2: Fundraising ok above a certain price
Get your own advocate 👔
But draft the docs - cap the fees