Getting Funded: Step 4, Due Diligence

Passionate Intensity

“Due Diligence” is a broadly defined term with explanations here: WikiPedia , Webster’s , and elsewhere. can you quantify what the overall impact of the company’s solution is on your organization in terms of time and money?

Signed Term Sheet

ithacaVC

We (Cayuga Venture Fund) just signed up a term sheet with a new company (Company X). Rather I want to briefly comment on the process leading up to the term sheet and next steps. I use the term “pro forma” as often there are equity issues that need to be resolved prior to the deal closing that are NOT currently reflected in the company’s current cap table (like planned grants to advisors, co-founder true ups, etc.).

Trending Sources

Term-sheets and Valuations: Thinking about Negotiations - Startups.

Tim Keane

Term-sheets and Valuations: Thinking about Negotiations. Please see later version of this post on May 16, 2010 Entrepreneurs are often not experts in the area of term-sheet negotiations and all of the surrounding issues.   Investors sometimes “present” the terms they’d like and expect the entrepreneurs to react. and walked through each proposed term and why it is or isn’t important. Non-financial terms affecting Risk.

Revisiting Paul Graham’s “High Resolution” Financing

Both Sides of the Table

Legal costs of early stage financing should be cheap – this is one of the final remaining arguments for convertible debt but even Paul acknowledges that this is no longer necessarily the case: “Different terms for different investors is clearly the way of the future.

What is it Like to Negotiate a VC Round?

Both Sides of the Table

Another problem that arises in financings these days is that after a VC submits a $2 million term sheet all of a sudden a large number of “helpful investors” pop up who were waiting for a “strong lead” and now all of a sudden a $2 million round becomes a $2.75m round. Of course investors care about controls (board, protective provisions, IP assignments, non-solicitation) but these are all pretty standard.

Copywrong Again: Founding the Next Pinterest or Napster?

Gust

Copyright is not the only type of IP right implicated — and others such as rights of privacy and publicity become increasingly relevant in the age of social media — but it provides many of the most accessible examples.

Bad Notes on VC

Gust

Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. Him: But it’s much cheaper to just use the Series Seed term sheets that every law firm has put out so convertible notes make more sense because they’re cheaper and easier. This week.

Notes on the acquisition process

Chris Dixon

I’ve seen many acquisitions bungled by bankers who were either too aggressive on terms or upset the relationship between the startup and acquirer. In terms of ethics and reputations, it is important to be fair to all parties involved: the acquirer, founders, employees, and investors. Some acquirers treat LOIs the way VCs treat term sheets, as a contract they’ll honor unless they discover egregious issues like material misrepresentations.

The investment that didn’t happen

K9 Ventures

While Zappos was doing diligence on Modista, the issue was brought up that one of other companies in this space — Like.com , founded by Munjal Shah — had filed for some IP in this area.

How to Work with Lawyers at a Startup

Both Sides of the Table

Shame about not getting it in legal writing that you owned the original IP. They’ll help you ensure that any money you raise doesn’t come with surprise terms that are hidden in legalese. He was the first guy that I saw demystify the legal terms in his term sheet series.

Burnham's Beat: SkyGrid and the Emergence of Flow-Based Search

Burnham's Beat

4 Things to Do After You Get Your First Term Sheet » 02/13/2008. Specially, traditional search technology and architectures suffer from several glaring weaknesses: Crawl-based : Current search architectures collect information to index primarily by employing massive farms of "crawlers" that systematically crawl IP address spaces. Burnhams Beat. Articles on Technology and Finance. About Bill. Archived Posts. Blog Roll. IPO/M&A Lists. By Category. By Month.

Startup Resources

www.vccafe.com

Cheat Sheets : Equip youself with HTML/CSS cheatsheets! IP Location Tools. WSGR Term Sheet Generator. Orrick, Herrington Term Sheet Generator. Founders Institute Plain Preferred Term Sheet â?? About VC Cafe. Contact.

Time is the Enemy of All Deals

Both Sides of the Table

We had many term sheets (it was 1999 and we had a pulse) and we were deciding which one to take. We were trying to optimize around a few criteria: price, size of round, number of syndicate partners and, of course, terms. We ended up agreeing a term sheet for $16.5

Getting Due Diligence Ready

StartupCFO

Investors will perform business diligence before they issue a term sheet. The most important ones by far: Intellectual property and IP assignment : make sure every current and former employee and subcontractor / consultant has signed a document assigning all IP rights to the company.

D-Wave's Dream Machine

Inc Startups

We need to sign away our IP? All of that seeded what is now the biggest IP portfolio in the world in quantum computing. We had a term sheet the next week." It says its current investors are "in this for the long term.

Shout Out to Seth Levine, or the In-N-Out burger startup

Scalable Startup

Investor groups are cutting out the management, bus dev, sales, and marketing professionals, trying to get raw, young engineering teams that have never negotiated a term sheet to give away their IP rights and equity for next to nothing. Long term employment, new jobs.

The Legal Side of Entrepreneurship

YoungUpstarts

Investors typically negotiate from a term sheet, which if not handled properly can create problems that can hurt or kill the startup’s chances when they do their Series A round of funding. a SAFE or KISS) provide a much simpler transaction with less terms to negotiate.

Startup Blog: Getting Rights to the Technology

Taffy Williams

In selecting the technology, you may already have IP or inventors identified but not have the rights yet. Make sure you conduct your own diligence review before entering into a negotiation for the rights; business criteria and IP criteria need to be a fit.

A Compilation of the Web's Best Advice for Entrepreneurs

Platforms and Networks

skip to main | skip to sidebar Platforms and Networks Thoughts about platforms, network effects and entrepreneurship Wednesday, November 25, 2009 A Compilation of the Webs Best Advice for Entrepreneurs Below, I link to blog posts and other online resources that offer advice for entrepreneurs. My selections are tailored for consumer Internet startups, but should be helpful to teams in other sectors. There’s a lot of information here, so don’t try to digest everything in one session.

When Is A Startup "Venture Fundable?"

Seed Stage Capital

Or, to put it in other terms, VCs typically want to see most of the technology risk and at least some degree of the business risk removed before doing a deal. skip to main | skip to sidebar 12 July 2010 When Is A Startup "Venture Fundable?"

SBIC 11

The Forgotten Founder: YouSendIt’s Khalid Shaikh

Inc Startups

When you're a given a term sheet, it's like the queen knighting you; you are supposed to genuflect for even gracing you with terms." In March 2007, Intel hired him as a consultant, the first of several short-term jobs.

When to Bring Up Valuation

ithacaVC

There are typically just a handful of pivotal terms in a VC deal and they fall into 2 categories: control terms (like special voting rights for the Preferred Stock and board seats) and economic rights (like liquidation preferences, anti-dilution protection, whether the preferred shares are participating or not, and………pre-money valuation). Seriously, pre-money valuation is a function of many things (team strength, size of market, IP, hotness of sector, etc.)

Knowledge Is Power: Convertible Note Financing Terms, Part V

Gust

As we conclude our convertible note financing series, there are assorted terms commonly seen in term sheets and deal documents that are worth touching on briefly. As I’ve noted before, readers joining this series in progress may find it helpful to download the sample term sheet from my firm’s website and review the earlier posts covering the basics. Having made it almost to the end of our sample term sheet: Documentation.

Piercing the Corporate Veil of Sweat Equity

grasshopperherder.com

As such, you should make sure to think of the proposals as an investor and get a reasonable term sheet. This would of course be in regards toa single corporation which holds all the IP and revenue.). GrasshopperHerder.com. • ABOUT. • CONTACT.

What Now: Deal or No Deal?

Peter Levine

After several rounds of negotiation, the terms they offer are: 50/50 net revenue split on all products upsold from the integrated free base; Pay SpiderNet $5 million in up-front cash; Five-year contract length; All current and future products; Exclusive distribution rights; First right of refusal if SpiderNet gets an offer to be purchased; Rights to source code if SpiderNet gets acquired by a competitor. Do not agree to a five-year term.

The Best Entrepreneurs Are Hyper Competitive & Hate Losing

Both Sides of the Table

Company B had already lined up a significant funding round ($20 million) from some of the most elite VCs on Sand Hill Road but hadn’t signed the term sheet. 6 months afterwards they laid off 75% of their staff and are existing on fumes to protect their IP to this day.

Channel your Inner VC to Understand Startup Valuations

www.currentlyobsessed.com

Valuation is an important aspect of VC deal terms, and a major determinant of your ultimate outcome. I have to admit, the light bulb didn’t go off for me until I was negotiating term sheets. Read Terms that Hurt (Venture Hacks).

Setting And Shaping A Strong Startup Culture

Seed Stage Capital

While you should never give away true IP or trade secrets, a primary job duty of the CEO is to pitch and sell the vision of the company-all day, all the time, to (almost) anyone who will listen.

The Business Plan is Dead; Long Live the Business Plan.

Seed Stage Capital

There were numerous IP telephony companies before Skype, and several video sharing attempts before YouTube, but bandwidth limitations in the early days of the web were serious constraints. skip to main | skip to sidebar 10 August 2009 The Business Plan is Dead; Long Live the Business Plan!

Web 2

Series Seed Financing Documents

www.seriesseed.com

Series Seed Term Sheet (v 2.0). Series Seed Term Sheet. Long term capital gains possible for early exit. It would be helpful to get a California standard employee manual, employee contract/agreements, IP ownership release to company, and confidentiality. In reviewing these documents on the term sheet, last item, how is the term "double trigger" defined. SeriesSeed.com. Series Seed Financing Documents Blog.

Getting Funded: Step 4, Due Diligence

Passionate Intensity

Due Diligence” is a broadly defined term with explanations here: WikiPedia , Webster’s , and elsewhere. There are funds that prefer to do significant due diligence before issuing a term sheet, and some save the bulk of the detailed work for the time between the term sheet’s signing and the actual closing of financing. can you quantify what the overall impact of the company’s solution is on your organization in terms of time and money?

Ask the Angels

Ask the Angels

The strategic buyer will pay a strategic premium because they can see an immediate short term method for recovering the acquisition cost. Too many Angels focus on the near term issues without appreciating that even these decisions need to be seen in the context of the exit. 3. Money talks and entrepreneurs get blinded once the term sheets and money appear, and once again don’t do sufficient diligence on their investors.

Ask the Angels

Ask the Angels

The strategic buyer will pay a strategic premium because they can see an immediate short term method for recovering the acquisition cost. Too many Angels focus on the near term issues without appreciating that even these decisions need to be seen in the context of the exit. 3. Money talks and entrepreneurs get blinded once the term sheets and money appear, and once again don’t do sufficient diligence on their investors.

Ask the Angels

Ask the Angels

The strategic buyer will pay a strategic premium because they can see an immediate short term method for recovering the acquisition cost. Too many Angels focus on the near term issues without appreciating that even these decisions need to be seen in the context of the exit. 3. Money talks and entrepreneurs get blinded once the term sheets and money appear, and once again don’t do sufficient diligence on their investors.

Ask the Angels

Ask the Angels

The strategic buyer will pay a strategic premium because they can see an immediate short term method for recovering the acquisition cost. Too many Angels focus on the near term issues without appreciating that even these decisions need to be seen in the context of the exit. 3. Money talks and entrepreneurs get blinded once the term sheets and money appear, and once again don’t do sufficient diligence on their investors.