Venture Capital Legal Guides (22 found)

Written by Avvo Staff
Venture capital is a high-risk investment that involves loaning money to new companies in exchange for shares in the company and the right to have some input in the business strategies.
1 of 2 users found this helpful. Posted in Venture Capital about 1 year ago.

Written by Eric A Koester
Dilution prevention provisions are designed to protect the investor from dilution that may occur in subsequent financings where stock is sold at a price lower than the investor originally paid.
2 of 7 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
You've received a term sheet from a venture capitalist. Now what? Next step involves negotiating the final term sheet that the parties will use to govern the investment. What should you expect and what is most important?
1 of 3 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Perhaps the most fundamental issue in any VC financing is valuation. Valuation refers to the value of the Company as established by agreement between the Company and the investors. Many entrepreneurs and investors will tell you: Valuation is an art and the product of negotiation, not a science.
1 of 1 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
A typical term sheet will include a provision related to the payment of dividends on the preferred stock. What is common and what should I look for?
2 of 2 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
The vast majority of term sheets will include a liquidation preference for the Preferred Stock — basically ensuring that the investors are paid out first if the company dissolves or is liquidated through a merger or acquisition. What is a liquidation preference and how does it work?
Posted in Venture Capital 11 months ago.

Written by Eric A Koester
In a prior legal guide, we talked about the general conditions of a liquidation preference. But there is more to the story. This guide details the concept of preference multiples, how they work, and why they are important.
Posted in Venture Capital 11 months ago.

Written by Eric A Koester
In prior legal guides, we talked about the general conditions of a liquidation preference and preference multiples. This guide details the concept of participating preferred stock, why its is important and what the impact is on your ultimate payout.
Posted in Venture Capital 11 months ago.

Written by Eric A Koester
This series of legal guides has looked at the general conditions of a liquidation preference, preference multiples, and participating preferred stock. The final guide on the topic of liquidation preference will look at Capped Participating Preferred Stock and why it matters in your term sheet.
4 of 4 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
The term sheet may include a provision to require the Company to redeem (“buy back at the original purchase price plus an annual carrying cost”) the preferred stock. Investors sometimes seek redemption rights as a way of obtaining a return on their investment.
2 of 3 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
The primary purpose of drag-along rights are to ensure that the investor’s shares won’t be held hostage in the event of a favorable acquisition or merger event.
Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Registration rights are an important right to investors since they provide a contractual right for investors to demand that the company register their shares with the U.S. Securities and Exchange Commission.
7 of 7 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
The co-sale right gives the investor the right to sell its shares on the same terms as the investors — usually on a pro-rata basis of its total ownership percentage in relation to the total sale.
1 of 1 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Venture Capitalists will usually negotiate for veto rights in the event of specified events or protective provisions in the form of special voting rights of preferred stock holders are often (but not always) included in the term sheet.
1 of 2 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Venture capitalists will almost always have at least some representation on the company's board of directors, usually the lead investor or investors of the round will receive a board seat as a result of their investment.
1 of 2 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Investors will often request preemptive rights or a right of first refusal as a tool to allow the investor to maintain its ownership percentage.
4 of 5 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Preferred stock will generally have a voluntary conversion right — permitting any holder of preferred stock to convert their preferred shares into common shares at any time.
3 of 4 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
One other wrinkle on anti-dilution clauses is the so-called “pay-to-play” provisions, which require the investors to participate in the dilutive round in order to receive anti-dilution protection with respect to their higher-priced preferred stock.
Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Typically with venture capital investments, the Company will pay the legal expenses of the attorney for the investors; generally the investors will select a single attorney to represent all the investors if multiple investors are part of the syndicate.
1 of 2 users found this helpful. Posted in Venture Capital 11 months ago.

Written by Eric A Koester
Many sophisticated venture investors will ask that the shares held by founders and employees be subject to forfeiture upon departing the company, but with specified percentages becoming vested against forfeiture over time.
1 of 2 users found this helpful. Posted in Venture Capital 11 months ago.