Category Archives: Term Sheets

Angel Investing – Ringing in the New Year 2014

??????????????????????????????????????????????????????Yes, it’s that time of year once again when we  think about resolutions for the New Year. In last year’s New Year’s post, I suggested that you think about the composition of your investment portfolio, taking into consideration the amount you want to commit to this sector overall as well as the diversification goals that make the most sense for you.

Here are my three tips for 2014:

Know your co-investors:

If the three most important criteria in real estate are location, location, location, then the top three for angel investing would be alignment, alignment, alignment. Not only is it important for investors and portfolio company CEOs to have alignment in terms of their vision for the company, it is just as critical for the co-investors to be aligned. When the business needs to shift direction, there is a follow-on round required,  or an exit on the table, having conflicting objectives among your co-investors can be quite problematic. The advent of funding platforms has made knowing who else is in the deal somewhat more challenging. Entrepreneurs will oftentimes do some due diligence on potential angels, I would suggest you do the same on potential co-investors.

Get your investment dox in order:

Whether there is a follow-on round contemplated or a potential exit on the table, it is also very important that you know both your rights and your obligations as an investor. Where did you file those stock certificates? Do you have pre-emptive rights? Know your options and obligations before a follow-on round or a potential exit.

Look at the world through the lens of an entrepreneur:

Whether it’s negotiating a term sheet or evaluating a major strategic shift, it is always helpful to put yourself in the other person’s shoes. When I review a term sheet for a potential investment, first I read it as an investor, then I read it as though I am the CEO receiving the term sheet. I also enjoy reading books and blogs directed at entrepreneurs. Here are a few of my picks:

If you have a great resource, let me know in the comment section below!

Have a very Happy New Year!

Angel Investing – Term Sheet Liquidity Provisions

Gold Guys With MoneyIn previous posts, I have described how certain term sheet provisions impact the Economics, Control, and Value Protection in a proposed investment. In this final post on Term Sheets, I will discuss some provisions that impact the Liquidity of the investment. Continue reading

Angel Investing – Term Sheets and Value Protection

Accountant With Giant Golden CalculatorThis is the fourth post on Term Sheets and how they impact returns to investors. In addition to economics and control, term sheets also contain provisions that impact how as investors we can add some level of protection for the value of our investment. Although there are a number of provisions in the term sheet addressing this, the three most important to me are:

Angel Investing – Term Sheet “Control” Provisions

teamwork rowingIn a recent post I discussed the “economic” aspects of a term sheet. In addition to laying out the economics of a proposed transaction, the term sheet also provides a road map to various issues revolving around “control”.  As angels, although we are not involved in the day to day management of our portfolio companies, we need to have a voice in strategic issues that impact our portfolio companies. Typically this “control” is exercised either through: Continue reading

Angel Investing – Term Sheet Economics

RechenschieberIn my last post, I listed four areas that Term Sheets cover. This week, I thought I would focus on some of the “Economic” terms. The terms below apply to Convertible Preferred Stock, although there are clearly other types of securities used to fund early stage companies.  These “economic” terms outline who gets what and cover such concepts as:

Valuation: For a Preferred Stock Offering, this represents the per-share price that you will be paying for the investment as well as the “pre-money” company valuation that this price implies. In addition, the term sheet will typically indicate the “post-money” valuation which includes in the company valuation the new funds being invested. Continue reading

Angel Investing – Term Sheets and Country Western Music!!!

Hank WilliamsProbably one of the things I have found that many of my fellow angel investors enjoy even less than analyzing the financial model of a company they are contemplating investing in (see my last post ) is diving into the Term Sheet. A  term sheet is a document that lays out the key terms of a proposed investment. Once those key terms have been negotiated and the term sheet is executed by both parties, it serves as the basis for drafting the other documents which comprise the legal closing documents in a transaction.

At a recent meeting, one of colleagues made the comment that term sheets are like country western songs – you know those soulful ballads that bemoan the difficult breakup, the secrets never shared, the soulmate you trusted who walked away and left behind a pile of debt……  When you make an angel investment you are not only entering into a financial transaction, you are entering into a relationship with the CEO/founders/management team. If you have been investing in this sector for awhile, it is likely you have made at least one investment that did not turn out as planned!  Another way to think about the term sheet is a kind of “pre-nup” for angel investing. Clearly if you don’t really believe that a particular investment has the potential to be a good partnership over time, you probably shouldn’t make the investment. Continue reading