EVALUATING VENTURE CAPITAL TERM SHEETS Case Study Analysis
Handling of Corporate Governance
According to the term sheet of top Gun, the preferred share holders have equal voting rights as compared to Common shareholders. The board will be initially comprising on three members. Andrew Liekerman will be designated by top Gun as the board member. The future board members will be decided by mutual consent. This approach makes entrepreneur to be bound abut board member selection. Additionally, it will provide equal voting rights to the investors.
According to the term sheet of Red Baron,the preferred shareholderscould exercise their voting right as-converted basis to common shares. As a separate class they could only vote for two board members. The decision would be based upon two-thirds majority of the Common and Preferred stock.The board will be initially comprising on three members.Aaron Nelsonwill be designated byRed Baron as the lead investor. Other Venture Firm will allow to represent one boards member and one by cofounders. This approach makes entrepreneur to be bound abut board member selection. This approach will provide a limited voting right to the Red Baron. Butthis approach entails several investors rights.
Term Sheets Negotiations
According to the term sheet of Top Gun, at the of liquidation, preference will be given to the preferred stockholders and they should be entitled to receive against all preferred stocks an amount which would be equal to the original price issue price along with this unpaid dividends should be paid.The most important items which should bediscuses are voting rights, board member issues, protective protections and right of first refusal.Series A preferred shareholders will then receive the Original Purchase Price by 2.50 times for converting into a common stock, this point should be addressed properly.To gun’s confidentiality issue is also negotiable because it entails long term provision. Additionally, the designated board member’s issue should be negotiated properly, and all the board members should be assigned with the mutual consent. Red baron’s proposal requires other investing partner which would be difficult to approach.
Conclusion
Edward Lopez and John Stevens started their mobile company under the name of Universal MobileApps, Inc. with a seed funding of $300,000 convertible notes from Languita Angels. They estimated that they would require $3 million or more to achieve their set millstones. They had received two term sheets for venture capital funding from Red Baron Venture Capital and Top Gun Venture Partners. Aaron Nelson will be designated by Red Baron as the lead investor.This approach will provide a limited voting right to the Red Baron. But this approach entails several investors rights.The Top Gunterm sheet makes entrepreneur to be bound about board member selection..........................
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