Valuation. Valuation is the most prominent negotiating issues. Valuation is the price of the company in which the adventure financier invests. Valuation determines what percent of the company the investor is buying for their chief.
Timing of the Investment. Abounding investors will commit a ample amount of chief, but will contribute that chief to the companies in installments. Generally, these installments are alone fabricated when pre-designated milestones are met.
Vesting of Founders’ Stock. According to chief, investors generally prefer that stock is accustomed to company founders and answer employees in installments. This is accepted as vesting.
Modifying the Management Accumulation. Some investors insist that supplementary or substitute management employees be hired subsequent to their investment. This gives investors supplementary security that the company will execute on its bag model. An big affair to negotiate with regards to modifying the management accumulation is the amount of stock or options that will be issued to advanced management accumulation members, as this will dilute the holdings of the founders.
Employment Agreements with Answer Founders. Adventure capitalists typically accomplish not appetite companies to accept employment agreements that limit the circumstances under which employees can be fired and/or set compensation and benefits levels that are too aerial. Other answer employment agreement issues to be negotiated with adventure capitalists accommodate restrictions on post-employment activities and employee severance payments on termination.
Company Proprietary Rights. If the company has an big product with intellectual property (IP), investors will appetite to arrange that the company, and not a company employee, owns the IP. In addition, investors will appetite to arrange that advanced inventions be assigned to the company. To this borderline, investors may negotiate that all employees must sign Confidentiality and Inventions Assignment Agreements.
Exit Strategy. Investors are actual focused on how they will cash out of their investment. In this regard, they will negotiate regarding registration rights (both demand and piggyback); rights to participate in any sale of stock by the founders (co-sale rights); and possibly a adapted to arm the company to redeem their stock under certain conditions.
Lock-Up Rights. Adventure capitalists may crave a lock-up period at the chat sheet stage. The lock-up period is typically a 30-60 day period where the investors accept the exclusive adapted, but not the obligation, to accomplish the investment. Investors typically conduct due diligence during this age without abhorrence that other investors will pre-empt their befalling to invest in the company.
Each of these issues are critical when raising adventure chief, since the outcome can significantly appulse the accomplishment of the adventure and the treasure abeyant of the company founders and management accumulation. As adventure capitalists are actual abreast regarding these issues, and accept abundant skill in negotiating on them, companies who are raising adventure chief should seek advisors who again accept this acquaintance and expertise.
About the author:
has developed over 200 bag plans for clients that accept collectively raised over $750 million in financing, launched abundant advanced product and service lines and gained competitive advantage and marketplace share. GT Bag Plans is the sister site of
Originall posted August 9, 2012