You Just got a Term Sheet for a Down Round — Woohoo!

  • Series A Price Per Share (PPS) was $1 and the Series-B PPS offer is $0.9 for a $25M round. Common Share ownership will get diluted from 67% after Series A to 49% after Series B.
  • 1X LP means the exit outcome of the company will first provide $25M cash back to the Series B investor (assuming no future financing).
  • The exit outcome has to be at least $45M (Seed, Series A, and Series B) for all prefs to clear. $45M onwards common start participating and $97.6M onwards, all $ get cleared. Assuming the outcome is an $85M exit, then 43% of the exit value will flow to common shareholders (usually founders and employees). The percentage increases to 46% at $100M, $200M, and $1B outcomes. The key point here is that for a modest outcome between $85M-$100M, founders and employees will still keep a large part of the pie.
  • Series A Price Per Share (PPS) was $1 and the Series-B PPS offer is the same as $1 for a $25M round. Common Share ownership will get diluted from 67% after Series A to 50% after Series B.
  • Here also, the offer is 1X LP
  • Series A Price Per Share (PPS) was $1 and the Series-B PPS offer is $1.1 for a $25M round. Common Share ownership will get diluted from 67% after Series A to 51% after Series B.
  • Here also, the offer is 1X LP
  • Series A Price Per Share (PPS) was $1 and the Series-B PPS offer is $1.1 for a $25M round. Common Share ownership will get diluted from 67% after Series A to 51% after Series B.
  • With a 2X LP, the exit event will first provide $50M cash back to the Series B investor.
  • The exit outcome has to be at least $70M (Seed, Series A, and Series B) for all prefs to clear. $70M onwards common start participating and $203.1M onwards, all $ get cleared.
  • For an exit outcome of $85M, only 18% of the exit value will come to common shareholders (usually founders and employees). The percentage marginally improves to 30% at a $100M outcome. The key point here is that because of 2x Liq Pref, for a modest outcome between $85M-$100M, the founders and employees give up a large part of the pie even though it’s a 10% up round.

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Heidi Roizen

Heidi Roizen

4.7K Followers

Partner at Threshold Ventures, Stanford Educator, Board Member, Mom, dog lover.