Capital Stock Basics & VC Term Sheet Provisions

VC Experts has partnered with Wiley Finance, the publisher of The Handbook of Financing Growth, and excerpted the most relevant content on basic private equity and venture deal structures. This Buzz of the Week reviews capital stock structure of a company. "The authors give a real world example of how Liquidation Preferences affect pre- and post-money valuation, voting rights, and what happens to investors and management when there are multiple layers of financing. They also review registration rights, anti-dilution clauses and all standard term sheet provisions." The equity investment term sheet is particularly well covered, stating:

"In many respects the term sheet is where the most action occurs in the investment process. As the parties negotiate the terms of the deal, valuation of the company and the role of existing management in the ongoing entity will be carefully documented. Several concepts relating to valuation of the company are important to understand in the negotiating process. The impact of slight nuances in the words used to finalize the term sheet can have dramatic impacts on the amount of equity retained by the owners." Such terms include:

Premoney and Postmoney Valuation
Liquidation Preference
Voting Rights
Protective Provisions
Antidilution Provisions
Registration Rights
Board Composition
Employee Stock Options
Founder Share Vesting