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Wil Schroter

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VentureHacks.com - A Must Read for Entrepreneurs Raising Capital
April 26, 2007

Venture Hacks - A great site for learning how to manage and prepare for an investor Term Sheet.

If you're not familiar with Term Sheets, they are the equivalent of a proposal that an investor will give to you that outlines the terms of the deal.

Most entrepreneurs have never seen a Term Sheet before, and therefore can get easily duped on complex terms.  The site is chock full of solid advice for avoiding the many pitfalls of a term sheet.

Here are some of my favorites -

Create a board that reflects the ownership of the company. Control of a company is won and lost at the Board level.  Not paying attention to who is taking what spots can quickly put you on the ass end of your own company.

Avoid the Option Pool Shuffle.  This happens when investors take a % of the company and allocate it toward future stock option grants (for new employees, execs) while diluting your stake to create it.  Not unusual to dilute to create more options, but particularly brutal when it's baked into your pre-money valuation. 

Focus on your Share Price, Not your Valuation.  Instead of worrying about how many shares you have (which can be doubled without adding any value to them) you should focus on the actual cash value of each share.

Even if you don't understand all the "why's" of this site right now, you need to at least understand what the basic points of a Term Sheet are so you know what to look for.

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Comments About this story

Where was this site when I raised my first round? I was clueless about the details back then. This is a very useful tool--helps level the playing field, at least a little bit.

Jeff

Posted by: Jeff Chavez 4/27/2007 at 11:55 PM

Hi, this is Nivi from Venture Hacks. Thanks for the kind words!

We've got a Cheat Sheet of all our hacks here: http://www.venturehacks.com/term-sheet-hacks/
Posted by: Nivi 5/12/2007 at 3:59 AM



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