Khawaja Minhal Hassan’s Post

A 𝐭𝐞𝐫𝐦 𝐬𝐡𝐞𝐞𝐭, also known as a "𝐋𝐞𝐭𝐭𝐞𝐫 𝐨𝐟 𝐈𝐧𝐭𝐞𝐧𝐭", is a non-binding agreement between an investor and a startup outlining the fundamental conditions for a proposed investment. Inherent to this document is the understanding that more complex, detailed documents will eventually be developed and signed down the road. 📍 The term sheet typically includes terms related to the 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐞𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐝𝐢𝐬𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 during liquidity events, 𝐜𝐨𝐧𝐭𝐫𝐨𝐥 over decision-making, and 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐩𝐫𝐨𝐭𝐞𝐜𝐭𝐢𝐨𝐧 terms in line with market standards. 💡 Here are some of the most common and essential terms included in a term sheet: ▶ 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐦𝐩𝐚𝐧𝐲: This can include pre-money valuation (the company's value before investment) and post-money valuation (value after investment). ▶ 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐦𝐨𝐮𝐧𝐭: The capital the VC will invest in the startup. ▶ 𝐄𝐪𝐮𝐢𝐭𝐲: The percentage of ownership the VC will receive in exchange for their investment. ▶ 𝐋𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐢𝐨𝐧 𝐏𝐫𝐞𝐟𝐞𝐫𝐞𝐧𝐜𝐞: Specifies the payout order in case of a liquidation event, such as the sale of the company. ▶ 𝐕𝐨𝐭𝐢𝐧𝐠 𝐑𝐢𝐠𝐡𝐭𝐬: Details the investor's rights to vote on company matters, often proportional to their shareholding. ▶ 𝐀𝐧𝐭𝐢-𝐝𝐢𝐥𝐮𝐭𝐢𝐨𝐧 𝐏𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧𝐬: Protects investors from dilution in future financing rounds by adjusting the price at which they initially invested. ▶ 𝐕𝐞𝐬𝐭𝐢𝐧𝐠 𝐒𝐜𝐡𝐞𝐝𝐮𝐥𝐞: Conditions under which the founders earn their equity, typically over time. ▶ 𝐁𝐨𝐚𝐫𝐝 𝐂𝐨𝐦𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧: The makeup of the company's board of directors post-investment. ▶ 𝐂𝐨𝐧𝐯𝐞𝐫𝐬𝐢𝐨𝐧 𝐑𝐢𝐠𝐡𝐭𝐬: The right to convert preferred shares into common shares. ▶ 𝐃𝐫𝐚𝐠-𝐀𝐥𝐨𝐧𝐠 𝐑𝐢𝐠𝐡𝐭𝐬: Allows majority shareholders to force minority shareholders to join in the sale of a company. ▶ 𝐏𝐫𝐞-𝐞𝐦𝐩𝐭𝐢𝐯𝐞 𝐑𝐢𝐠𝐡𝐭𝐬: Gives existing investors the right to participate in future funding rounds to maintain their percentage of ownership. Understanding these terms is crucial for founders to negotiate effectively and secure terms that are favorable for their startup's future while ensuring investors' fair returns. #startupinsights #mentor #vc #founding #raising #earlystagestartups #investor

The Good… the Bad…. and the Intermediate: Leavers explained   In our latest Fundamentals guide, Hannah Cordwell explores leaver provisions – breaking down the various categories of leaver and their consequences and typical negotiation points when a founder takes on new investment. https://lnkd.in/ea5RUykR   #venture #founder #startup

Everyone knows 2023 was a tough year for startup valuations, but just how tough? A new report from PitchBook has more detail. Median valuations fell to three and five-year lows, but pre-seed and seed valuations remained buoyant. IPOs continued to underperform, with average valuations reaching their lowest level in a decade. The report found a brighter outlook in M&A activities, with the average acquisition value increasing on an annual basis. Need some help figuring out what this means for your company? Get in touch with the team at G-Squared Partners, LLC today and start building for a better financial future: https://hubs.ly/Q02mDvhN0 #gsquared #gsquaredpartners #gsquaredCFO #chieffinancialofficer #cfo #accounting #fractionalcfo #ceo #virtualcfo #business #entrepreneur #parttimecfo #smallbusiness #chiefexecutiveofficer #finance

Investors will run away if your cap table is messy. It's probably your first time as a founder creating one. Investors have analyzed countless cap tables. For first-time founders, creating and understanding a cap table is daunting. The more a startup grows, the more complex the cap table becomes. Investors don't have the time to deal with a messy cap table. It indicates to them founders don't know what they're doing. Avoid the following mistakes: 🚩 A cap table with numerous share classes, each with different rights and privileges, can create complexity and confusion. 🚩 Not regularly updating the cap table to reflect current ownership percentages can lead to misunderstandings about the distribution of equity. 🚩 Fluctuations in valuation and unclear data on how each funding round dilutes equity can make it difficult for investors to assess the company's value and growth trajectory. 🚩 A large or undefined option pool can significantly dilute existing shareholders' equity. 🚩 Without clear liquidation preferences, it's difficult for investors to understand how proceeds will be distributed in an exit scenario. 🚩 The lack of anti-dilution provisions exposes investors to the risk of their investment being devalued in future funding rounds. 🚩 Missing information on past funding rounds can obscure the company's funding history and investor confidence over time. 🚩 Not including outstanding debt or convertible notes in the cap table can misrepresent the company's valuation and equity structure. 🚩 A single investor with too much control can lead to governance issues and potential conflicts of interest. 🚩 The absence of projections for various exit scenarios leaves investors without a clear understanding of potential returns. 🚩 Vesting schedules that are not clearly defined can signal potential issues with the commitment and stability of the team. What has been your biggest lesson as a founder when detailing the cap table? 💬 P.S. Send me a message with the word 'PITCH,' and I'll share access to my free pitch workshop to ensure you receive funding from any investor. #startups #founders #investing #captables #VC #fundraising

Are navigating the complexities of liquidation preferences? ✅ Whether you're in the early stages of seeking funding or navigating your way through a complex deal, this article has some valuable insights for you. It's not just about securing funding; it's about understanding the terms and how they affect your company's future. 💡 Key Takeaways: - Understanding Liquidation Preferences: Learn how they impact your startup's funding and what it means for you as a founder. - Strategic Decision-Making: Discover strategies to negotiate better terms and protect your interests. - Real-World Scenarios: Gain insights from examples that illustrate the importance of liquidation preferences in various funding stages. 🔗 Check out the article and feel free to share your thoughts or questions in the comments! https://lnkd.in/d3RwcFGP #StartupFunding #Founders #VentureCapital #LiquidationPreferences #StartupGrowth #Entrepreneurship

One Investor asked if is it okay to buy common shares of not-so-great businesses at a huge discount.   📝 Nowadays I have seen that some investors are buying common shares of not-so-great businesses at huge discounts thinking that they are getting a great deal but in reality, it’s not as great as it seems.   📊 Let’s take an example to understand this. - Company A raised $200 million in different funding rounds (1X Liquidation Preference throughout) - The Latest valuation as of 2023 was $600 million   📉 Unfortunately, Company A's performance deteriorated recently - Due to this bad performance, in the secondary markets, investors can buy Company A's common shares at an 80% discount to its 2023 valuation of $600 million - So Implied valuation of Company A= $600 million*20% (80% Discount)= $120 million   🤝 Next, let’s say Company A got sold at a 70% discount to the last financing - Selling price=$600 million*30% (70% Discount)= $180 million - Now in this situation, the investor may think that they would get a 1.5X return ($180 million/ $120 million) but it’s not like that.   - Because the $180 million in cash from the sale was less than the $200 million in preference that had to go to debt holders and preferred shareholders first, leaving the common shareholders with nothing.   🎯So, the lesson here is: be cautious when buying common shares, especially in businesses that aren't the very best or that you can't thoroughly investigate.   That’s it for today.   Photo Credit: Pollen VC 📌Some more insights: 1. Is your start-up ready for Venture Capital: https://lnkd.in/di42tRXW 2. CapTable and Waterfall Analysis Model: https://lnkd.in/dSeNiaqf 3. Modeling SAFE Note and convertible note: https://lnkd.in/d_qAe_E2  I’m Fazlur Shah Click my name + follow + 🔔   ♻️ Reposts, Comments, and Likes Are Appreciated so that a maximum of people can see it.  #startups #entrepreneurship #venturecapital #investing #fundraising  

Start-up Employees! When is the Right Time to Liquidate Your Equity? 🤔 Managing equity as an employee means thinking like an investor. Our latest blog post explains why selling early can maximize gains and reduce risks. At Robyn Capital, we help you receive significant funds today while retaining 100% ownership of your shares. Secure your financial future with us. Read more on our blog. #Startups #Equity #Investment #Finance #RobynCapital #stockoptions https://lnkd.in/d5cvjXCJ

Excellent summary by Steve Rigby in Friday's Times Business of one of the biggest but little discussed issues around the growth agenda in the UK - too much focus on unicorns rather than the long term foundation of mid-market "winners". Steve is right to say we are selling too many of our winners to the US......but that has been the exit route that has filled the IPO void for private equity, particularly in the technology sector. And a large number of high priced US investments in tech in 2020-21 are now looking to buy and build to average down their in-cost, so the trend is likely to accelerate. Continuation vehicles may offer a way for UK funds to hold these assets longer, but that will not turn the tide on its own.

Cap table management is sometimes undervalued. However, it's always the first thing to check when you join the company as the in-house lawyer. And create it if it's not done yet. Read the full article with more insights here: https://lnkd.in/djcYt-Ty

Should Your Startup Go Public? Weighing the Pros & Cons of an IPO The IPO dream: it beckons many startups, but is it the right move for yours? Let's explore both sides of the coin. Going Public: The Allure Capital Infusion: IPO unlocks a treasure trove of investor cash to fuel growth, R&D, and strategic acquisitions. Credibility & Visibility: Public listing screams "established player" - attracting customers, partners, and top talent. Employee Motivation: Stock options incentivize your team by letting them share the company's success. Liquidity & Acquisitions: Investors get an exit path, and your company becomes a more attractive target for potential acquirers. Challenges to Consider Cost & Scrutiny: The IPO process is expensive and involves stricter regulations and reporting requirements. Short-Term Focus: Public markets often prioritize short-term gains, potentially hindering long-term vision. Loss of Control: Founders may relinquish some control as shareholders gain voting rights on key decisions. Market Fluctuations: Prepare for a rollercoaster! Stock prices can be heavily impacted by external factors. Not for Everyone: Companies with unproven models or high debt may struggle to attract investors. The Takeaway Going public is a strategic decision, not a one-size-fits-all answer. Consider your growth stage, financials, team experience, market conditions, and long-term goals. Explore alternative funding options and the impact on your company culture too! Ultimately, a successful IPO can be a powerful growth tool, but it's just one piece of the puzzle. Building a sustainable company requires a strong foundation, a clear vision, and a talented team. #startup #IPO #investment