Trendsetter: Negotiation and Term Sheets

Learning Objectives

The entrepreneur/VC relationship

Exposure to deal term sheets
Moving beyond valuation
VC negotiations

Entrepreneur/VC Relationship Entrepreneur VC 3
Provisions to address adverse selection

Provisions to facilitate monitoring/control rights to information and board seat employment contracts and termination rights
Provisions to enable harvesting
Protection of standing anti-dilution provision preemptive rights and right of first refusal

Case Discussion Questions

Calculate the pre- and post-money valuations for Trendsetter under both term sheets.
What would the payoffs to the founders and the VC be if Trendsetter is acquired in a transaction that values the firm at $10 million? 25 million?
What are the main differences and similarities between the two term sheets?
If you were the entrepreneur and could not negotiate any of the terms in either sheet, which one would you prefer and why?
How would you seek to alter the terms in each term sheet during negotiations with the venture capitalists?

Trendsetter Inc. Overview
Term Sheets: Key Provisions

Valuation
Dividends
Liquidation preference
Election of directors

Scorecard Provision

Valuation 
Dividends Winner Reason(s)
Liquidation
Directors