1.
Conquering the Term
Sheet:
Everything You Need to Know About Deal Terms

2.
David Stark
Partner, OurCrowd
@starkupnation
Zack Miller
Partner, OurCrowd
@newrulesinvest

3.
OurCrowd
Leading equity
crowdfunding platform
with 8000+ investors
from over 100 countries

4.
Investment Checklist
1. Great team
2. Market
3. Easy to understand
4. Traction
5. Sponsorship
6. Good deal

5.
A good
(investment)
deal =
risk-adjusted return
ample upside
downside protection
alignment of interests

6.
The Naked Term Sheet
Crafting and Reading Deal Terms

7.
“A non-binding agreement setting forth the
basic terms and conditions under which an
investment will be made.”
Term Sheet

8.
Lesson 1
The Naked Term Sheet
Valuation
Liquidation preferences
ESOP
Preemptive rights
Anti-dilution protection
Board representation
Control provisions
Convertible Notes
Discount
Cap
Interest
Maturity
Conversion Mechanics
Lesson 1 - Equity Lesson 3 (May 27)
Lesson 2 (May 20)

9.
Deal term triumvirate
Valuation
ESOP Preferences

10.
1.) Premoney + Investment Amt = Postmoney
2.) Investment amount/postmoney = % ownership
PreferencesESOPValuation

11.
Art and a science of valuation:
multiple methodologies
Early Stage
Mid Stage
http://blog.ourcrowd.com/index.php/2014/05/14/cashing-in-how-to-make-money-investing-in-startups/
Late Stage
Source:
PreferencesESOPValuation

12.
Understanding objectives of founder/investor
relationship:
zone of possible agreement (ZOPA)
PreferencesESOPValuation

13.
Real Life Case Study
Deal terms reflect the
current reality at the
time they’re crafted
PreferencesESOPValuation

14.
Real Life Case Study
PreferencesESOPValuation
effectively better value

15.
Valuation ESOP Preferences
Employee Stock
Option Plan
Fluid over time, used to
recruit and retain talent

16.
Valuation ESOP Preferences
Investors want largerFounders want smaller ESOP
Counterintuitive

17.
Valuation ESOP Preferences
Investing at fully-diluted, premoney valuation with sufficient
ESOP allocated to result in target postmoney pool
$20M premoney valuation
Existing ESOP: 10%
Desired ESOP: 20%
(10% will come out of premoney)
Effective Valuation: $18M

18.
Valuation ESOP Preferences
High sticker price (valuation)
vs.
Lower price per share
Something to look out for

19.
Valuation ESOP Preferences
Preferences are the
ultimate downside
protection

20.
Valuation ESOP Preferences
We invest $1M at
$4M premoney (20%
ownership)
Company gets
acquired at $10M
Example
Non Participating preferred
The greater of [1]x OR prorata
$1M OR 20%*$10M
$1M < $2M

21.
Valuation ESOP Preferences
We invest $1M at
$4M premoney (20%
ownership)
Company gets
acquired at $10M
Participating preferred
[1]x AND prorata
Money back and then piece of remaining
pie…so,
$1M + (20%)x($9M) = $2.8M
Example

22.
Valuation ESOP Preferences
We invest $1M at
$4M premoney (20%
ownership)
Company gets
acquired at $10M
Example
Partial (capped) Participation
[1]x + prorata up to [5]x
If exit was $100M, then…

23.
Valuation ESOP Preferences
Liquidation prefs can
create indifference
towards certain exit
scenarios
Tradeoffs:
Relationship between valuation and preferences

24.
Valuation ESOP Preferences
Real Life Case Study

25.
Next step?
Join us next week for Lesson 2
Anti-dilution protection
Board representation
Control provisions
OurCrowd.com
Check out our real-life
term sheets by
accrediting on our
website