Entrepreneurial Finance: Negotiating with Venture Capitalists: Trendsetter Inc. TEACHING ENTREPRENEURIAL THOUGHT & ACTION 20 March 2012 Richard T. Bliss‚ PhD Trendsetter Inc. Learning Objectives 1. The entrepreneur/VC relationship 2. Exposure to deal term sheets 3. Moving beyond valuation 4. VC negotiations 2 The Entrepreneur/VC Relationship Entrepreneur VC 3 The Entrepreneur/VC Relationship • Provisions to address adverse selection − due diligence − staging/milestones − use
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| TRENDSETTERS INC. Term sheet Negotiations | Entrepreneurship and Venture Capital | | | Introduction: Trendsetter Inc. was formed by Wendy Borg and Jason Kushdog‚ the CEO and the COO respectively‚ in March 2000‚ to deliver innovative warehouse and distribution management software program for clothing retailers. The “founders” started the firm after quitting their respective jobs and decided to pool in their savings in the firm. The software produced by the firm would contain a demand
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Term Sheet BUS605: Venture Capital and Private Equity Term Sheet “A term sheet is a non-binding agreement setting forth the basic terms and condition under which an investment will be made. The term sheet serves as a template to develop more detailed legal documents. Once the parties involved reach an agreement on the details laid out in the term sheet‚ a binding agreement or contract that conforms to the term sheet details is then drawn up” (Investopedia‚ 2013)
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Key Assumptions • Expect Trendsetter to grow quickly • Revenue performance hurdles will be met (Alpha) • No dividends are declared • This is the first round of negotiations and both parties are open to at least one more round Number of Shares The number of shares held by the founders is a very important point they can try to renegotiate. In the Alpha term sheet the founders have a percentage ownership of 34% if the revenues hurdle of $500‚000 is met. The founders hold 32.6% if the revenue
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Trendsetters in deodorant The deodorant market in India is showing an upward trend as major players tap this segment. The growing income and increased expenditure capacity of average Indian consumers have changed their lifestyle habits. Deodorant market in India is estimated to be of Rs 10‚543.3 million in 2011 and is expected to reach Rs 13‚ 340.7 million by the year 2012. The deodorant market is projected to grow at 25 per cent CAGR over next 5 years. The deodorant market is divided into
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1) What are the most important terms for Laracey? Founders’ termination term is very important for Laracey because it increases the possibility that the unvested equity of the founders could be accelerated when the incoming CEO terminates them. It directly protects the benefits of the founders. 2) What are the most important issues for Guerster? Mergers‚ redemption‚ reorganization of the company‚ or transfers of control of edocs are the most important issues for Guerster. These issues
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2010 [Type text] Emerging Company Finance FNCE 480 - Final Frank Kurupacheril [TRENDSETTER’S TWO ROADS] Trendsetter‚ Inc – a warehouse and distribution solution software company for clothing retailers is faced with the usual dilemma. They are running out of seed money that the founders contributed. Now they have received two term sheets from prospective VC’s. The ball is in the founders’ court who have to choose one after weighing pros and the cons. Contents Introduction .
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Strictly private and confidential Not to be disclosed or distributed to third parties Draft ● Indicative Term Sheet [For use on Series A round] We are pleased to present our proposal for an investment in ● (the "Company"). Investment 1 You have told us that the proposed business plan calls for an equity injection of £● . Of this amount‚ funds managed by us (the "Funds") will provide £● alongside investment by other venture capital funds or financial institutions (together
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firms current/target financial policies Financial statement approach- utilizes profitability analysis along with a balance sheet evaluation of what the effect of a course of action would have on the commpanys liquidity and cash position. Valuation approach- Is the determination of the present dollar value of a series of cash flows. The discount rate chosen in short-term financial decision making should always reflect the companys opportunity cost Market manager- worries about finished-goods stock
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TERM SHEET FOR POTENTIAL EQUITY INVESTMENT IN [NAME OF CORPORATION] / AND STRATEGIC ALLIANCE This term sheet summarizes the principal terms with respect to a potential private placement of equity securities of [NAME OF CORPORATION] (the “Company”) by [NAME OF INVESTOR] (“Investor”) and related strategic alliance. This term sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation. No legally binding obligations
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