Venture Deals, 4th Edition

CHAPTER 7Other Terms of the Term Sheet

Up to this point we’ve been exploring terms that matter a lot and fall under the category of economics or control. As we get further into the term sheet, we start to encounter some terms that don’t matter as much, are only impactful in a downside scenario, or don’t matter at all.

This chapter covers those terms, which include dividends, redemption rights, conditions precedent to financing, information rights, registration rights, right of first refusal, voting rights, restriction on sales, proprietary information and inventions agreement, co-sale rights, founders’ activities, initial public offering shares purchase, no-shop agreement, indemnification, and assignment.

Dividends

Whereas private equity guys love dividends, most venture capitalists, especially early stage ones, don’t really care about them. In our experience, the VCs who do care about dividends either come from a private equity background or are focused on downside protection in larger deals.

Typical dividend language in a term sheet follows:

Dividends: The holders of the Series A Preferred shall be entitled to receive [non]cumulative dividends in preference to any dividend on the Common Stock at the rate of [8%] of the Original Purchase Price per annum [when and as declared by the Board of Directors]. The holders of Series A Preferred also shall be entitled to participate pro rata in any dividends paid on the Common Stock on an as-if-converted basis.

For early stage investments, ...