Early-Stage Investment Terms

Hosted By LetsVenture11TH FEBRUARY 2015

Who Am I12+ years on Wall Street (technology & operations in hedge funds)

Moved to India in 2007.

Started a marketplace for domestic services. Failed.

Co-founder of HeadStart and founder of Startup Weekend India - building community

TLabs an accelerator run by Times of India

Couple of angel investments

500 Startups India & NYC

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Seed fund and accelerator program (Mountain View, San Francisco, Mexico City)

Mentor Network / Community

200+ design, technology, marketing, and product experts provide 1:1 mentoring to portfolio companies

Over 950 companies, 2000+ founders in 51+ countries around the world, provide peer review and feedback on products, industry verticals, platforms, etc.

Conferences & Events

Dedicated conference team has completed 50+ events w/ 300-1,000 attendees per event; total reach of over 25,000+ people

Geeks on a Plane

Invite-only tour for startups, investors, and founders

Learn about global trends, meet international companies, and gain insight/access to foreign markets

500 Startups

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Pre/Post-MoneyPre-money = value of co before investment

Post-money = value of co after investment

4.5Cr Pre-money

1.5Cr Investment

Post-money = 6cr

Dilution = 25%

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Beware: Dilution in IndiaGeneral Terms asked for:

25% Dilution at angel round + 10% option pool (usually created before investment so no dilution for investors)

30%+ dilution at Series A + 20% option pool

2 founders/ 50% each

Before closing angel round 10% option pool / 45% per founder

After closing angel round, each founder at 33.75%

Target:

10-15% at angel round, maybe 20%

20-25% at Series A, possibly 30%

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Board of Directors

Control & Responsibility + fiduciary duties as directors

Typically at early stage angels ask for one board seat. Push back or ask for resignation at Series A

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Beware: VestingEarn your equity. You don’t own it…yet.

Vesting clock starts when you start working for company

Typically, founders vest stock monthly; employees generally have a one year cliff (usually 25%)

Sometimes investors ask to start clock upon closing the round. Push back hard on this.

If founder leaves, unvested shares are bought back by company

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Pari Passu

Talk to YOUR lawyer

Usually negotiated much later than seed/angel stage (whether liquidation preference of Series B should be senior or pari passu w/ Series A)

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Liquidation Preference

Who gets paid first (and how much) when the company gets acquired or shuts down (linked to Pari Passu)

Strive to keep it simple.

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Information Rights

Monthly, quarterly and yearly financials

Minutes of meetings of Board of Directors and copies of materials distributed to the Board

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Redemption/Drag-Along RightsUsually not seen in the US at seed / angel rounds

Be careful of provisions that:

Force founders / company to buy back investors’ shares at fair market value (redemption rights)

Force founders / investors to sell the company (drag-along rights)

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ROFR (Right of First Refusal) / Co-Sale RightsTypically any founder common stock being sold is first offered to investors

Investors have co-sale rights on any stock founders sell (if they turn down ROFR rights)

Typically no time-limit on these rights held by investors

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Resourceshttp://500.co/blog

http://www.gothamgal.com

http://avc.com

http://www.feld.com

http://www.bothsidesofthetable.com

Venture Deals by Brad Feld

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Thanks!PANKAJ JAIN PANKAJ AT 500 DOT CO @PJAIN

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