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TermSheet

Side Letters are separate legal documents, that usually come in addition to a term sheet, and may contain clauses which can have a big impact on your company. Here are the common matters usually addressed in side letters and how they can affect your company. Information and Notification Rights Usually requested by strategic investors, i.e. the major public companies in your industries. Information rights means an investor has access to the company’s financial information (revenue, profits, costs, etc.) every quarter. Notification rights means you must inform this investor of an acquisition offer, which you cannot accept for a predetermined time period (usually enough time for the investor to potentially provide a counter offer). What it is: Although notification rights have the potential to trigger a bidding war for your benefit, the risk is that the investor can also use it to investigate one of your competitors. As the investor knows you can’t be bought by another acquirer without their knowledge. Information rights make it difficult for your company to control its own story to the investor. For example, during future fundraising discussions, if you had a downturn in profits due to a new product launch, the investor may not get excited because they’ve seen your financials out of context. How it hurts: Super Pro Rata This grants an investor the right to buy a larger percentage of the company at a later stage. Usually, it’s a larger percentage than their first investment bought and would be purchased during your next round of financing at whatever price is set by the lead investor. Thus, the investor can increase their stake in the company in the next round but doesn’t (usually) get a special price. What it is: Most of the time this money will be a great momentum driver for your next fundraising round. However, if your round is very competitive or your new investors want to buy a large share of the company, then the team will experience additional dilution. For example, if InvestorA wants to buy 35% of the company and InvestorB has Super Pro Rata rights for 15%, for a total of 50%, then everyone will be diluted by 1/3; rather than just 1/4 if it was only InvestorA. Assuming 100 initial shares, 50% dilution: 100/150 = ⅔ still owned by team; 35% dilution: 100/135 = ¾ still owned by team. There is also risk if an investor with Super Pro Rata rights doesn’t invest in the next round, as that signals negatively to other potential investors. How it hurts: Code of Conduct As a part of the investment, your investor asks your company to adopt specific policies which meet or exceed their standards on common issues in the workplace such as: HR initiatives. What it is: In almost all cases, these policies are helpful. However, problems can arise if they are not regularly communicated to the rest of your team. For example, if your company policy requires every open position to have a candidate from an underrepresented group be interviewed before a hire is made, the hire could be stalled until this requirement is fulfilled. This can cause internal friction and tempt circumvention of the guidelines, especially when it is a surprise. How it hurts: Side letters are common part of the term sheet process in seed rounds. Make sure you understand the impact of the most prevalent terms and how they will affect your company in the future. Disclosure: My fund ( Sterling Road ), asks for Super Pro Rata rights when making investments. You can view the full process here . If you’re a B2B company at the seed stage looking for help, you can reach me at ash@ashrust.com. , Thanks to Kaego Rust, Alec Barrett-Wilsdon, Eric Wiesen Sean Byrnes and David Smooke for their help on this article. Photo by Helloquence

Seed Fundraising — Term Sheet Problems Part 3 — Side Letters

Most term sheets have a section defining a new structure for your company’s Board. While the board can’t influence the day-to-day operations, they govern who does. It’s imperative you understand how the new board will work and most importantly, who has control. Board Seats This is the core structure of your company’s board. The ideal layout at the seed stage is 2 founders and 1 investor (usually the lead investor). However, some term sheets may define the board as 1 investor, 1 founder and 1 board member. What it is: independent If the majority of board seats are not controlled by the founders, then you risk losing control of the company. In the example above of 1 founders, 1 independent and 1 investor, the board can fire you and your co-founders if the relationship breaks down. How it hurts: Board Voting Rights An investor with special voting rights has more weight to their vote than their equity stake. For example, “All board approvals require a yes vote by a majority of the Preferred Stockholders”, would allow your preferred stockholders (investors) to block decisions made by a majority of the board. What it is: Very similar to the issue of board control, if a majority of the voting rights are not with the founders, you can lose control of the company or miss opportunities. A common example of this is investors blocking a favorable acquisition because they prefer you keep pushing for higher returns in the future. How it hurts: Board Decisions This is when the board is required to approve certain types of company decisions including strategic, fundraising, or vendor selection. For example, “All contracts over $10k/year must be approved by the Board”. What it is: Having to approve low-level decisions with the board can slow your progress significantly. For example, if you’re trying to select a new cloud server provider to cut costs but require the Board’s approval, the process could take months; reducing your options to save money at a critical time. How it Hurts: CEO Board Seat In this case, the CEO of the company will always have a board seat, whether or not they’re a founder or have a significant equity stake. For example, “The board shall consist of the current CEO, 1 common stock, 2 preferred stock, and 1 independent appointee”. What it is: A CEO seat can cause the founders to lose control of the company. In the example above, if the founding CEO resigns or is fired, and the new incoming CEO is not a cofounder; then the founders will have just 1 seat on a board of 5. You can avoid this issue by insisting on 2 common stock appointees, rather than a named seat for the CEO. This ensures you get the ideal 5-person structure of 2 common stock, 2 preferred stock and 1 independent appointee. How it Hurts: Getting your board’s structure right can help avoid large headaches later. Understanding Board dynamics before signing an agreement will make it easier to focus on building the most successful business. In Part 3 of Term Sheet Problems, we will discuss side letters. This article is part of a series on Seed Fundraising:1. When to Raise Money 2. How to Build a Deck 3. The Basics of Meetings 4. VCs vs Seed Funds vs Angels 5. How to get a Meeting 6. The 5 Most Common Pitch Mistakes 7. How to get Early Momentum 8. How to Handle an Angel Investor Meeting 9. How to Close the Lead Investor 10. 4 Investor Gotcha Questions 11. 10 Traits of Successful Founders Thanks to Kaego Rust, Alec Barrett-Wilsdon and David Smooke for their help on this article.Photo by Benjamin Child

Seed Fundraising — Term Sheet Problems Part 2 — Boardroom Blues

When an investor finally issues a term sheet, it can be overwhelming, regardless of the actual terms it presents. However, you need to know what each clause means and how they can impact your company. Here are some of the most common problems you’ll encounter that can prevent you getting the money your company needs: Minimum Raise “Acme ventures will invest $1M in a minimum $1.5M financing”. In this scenario, you will have to raise at least the minimum before this lead investor will close. Given the lead’s commitment you must raise an additional $500k ($1.5M min - $1M from lead). What it is: This provision can mean your round doesn’t close at all. If you don’t reach the required minimum, this investor will pull out. If other investors see the term sheet, they will worry why your lead lacks the conviction to fund you immediately. How it Hurts: Deadline to Close “All participants in this financing must provide signed documents by <date>”. Thus every investor must agree to all the terms, have them approved by counsel and be ready to wire funds by this date. What it is: If the timeline is 4 weeks or less, it can force quick decisions on investors. If these investors’ process timeline extends beyond the deadline, you could miss out on both their capital and any additional help they might provide. How it Hurts: Post not Pre-money “Acme Ventures will invest $1M at a $5M post-money valuation”. This usually indicates that regardless of the total amount raised in the round, this investor expects to own 20% of the company for their $1M investment. What it is: If you decide to raise more than the term sheet provides, you will suffer dilution but the investor will not. Using the example above, existing stockholders will experience 25% dilution, as the pre-money valuation is $4M ($5M post-money - $1M invested). However if company raises a total of $2M, then stockholders experience 67% dilution as the post-money remains at $5M, meaning the pre-money valuation drops to $3M ($5M post money - $2M invested). How it Hurts: Given the large impact of these common terms, it’s important you understand them and determine their relevance to your company’s situation. Understanding the ‘money’ terms will help you get the round closed quickly. We’ll address terms related to your company’s board structure in Part 2. This article is part of a series on Seed Fundraising:1. When to Raise Money 2. How to Build a Deck 3. The Basics of Meetings 4. VCs vs Seed Funds vs Angels 5. How to get a Meeting 6. The 5 Most Common Pitch Mistakes 7. How to get Early Momentum 8. How to Handle an Angel Investor Meeting 9. How to Close the Lead Investor 10. 4 Investor Gotcha Questions 11. 10 Traits of Successful Founders Thanks to Kaego Rust, Alec Barrett-Wilsdon and David Smooke for their help on this article.Photo by Štefan Štefančík

Seed Fundraising — Term Sheet Problems Part 1 — Money Talks

Let's learn about via these 43 free stories. They are ordered by most time reading created on HackerNoon. Visit the to find the most read stories about any technology. Brick_trade /Learn Repo 1. Your House on the Blockchain? Real estate will be the first real-world asset on blockchain, so here is the 4-step guide to tokenizing real estate on the blockchain: 2. Permissioned DeFi — DeFi for the Corporate Institutions Decentralized finance has apparently solved the limitations known with Centralized finance. 3. What Does a Stock Market Sell-off Mean? 4. Worried About Bitcoin Price? Let Data Lead the Way Three reasons not to worry about a bitcoin crash 5. DeFi: The Future Of Real Estate Financing Ever thought about the impact of DeFi and Web3 on real estate and how it's funded? Let's explore together the nuances of the viable alternative to TradFi. 6. How a DeFi Future Will Look Like Let's go through how Decentralized Finance came to be and explore what is next it in the future. 7. 3 Types of Good Debt & How You Can Make Them Work for You Debt is a word that is usually associated with negative connotations, this is usually due to the abuse of personal debt by some people for unnecessary purchases 8. Enter the Cybersecurity, Finance, and Linux Writing Contests: NOW OPEN. Good contests come in threes. 9. DeFi, DEXs, and the Growth of Cryptocurrency Trading Platforms Story is about the future of decentralized finance (DeFi) and the growth of cryptocurrency trading platforms, also known as decentralized exchanges (DEXs). 10. What Is Impermanent Loss? Why decentralised exchanges and the way that automated market makers work mean that losses made while investing may not be as permanent as they initially seem. 11. The Smart New Tools Powering The Crypto Trading Boom The Smart New Tools Powering The Crypto Trading Boom 12. How to Make Money With Crypto, and Keep It - The Definitive Guide Cryptocurrencies offer unprecedented ways to earn sustainable, long-term wealth and a higher quality of life right here, right now. 13. Global Fintech Unites Against the War Just a few months ago, a major war happening in Europe was unthinkable. 14. Bill "The Farmer" vs. "Crypto Fools" The old and wise have spoken, crypto as the future of finance is broken! 15. The 7 Craziest Financial Stories of 2021: Investing in Nothing The financial market has greatly surprised millions of people in 2021 with nonsense investment stories. This article discusses the 7 craziest financial stories. 16. What are 1099-B Tax Forms and Why They’re Going to Be Necessary for Crypto Exchanges As cryptocurrencies become more widely used, the US government is now looking to tax them, now using the 1099-B tax form to do it. Here's what you need to know 17. The Tides of Leverage Are Subsiding And It's Great For The Long Run The Mount Rushmore of crypto capitulation of 2022 has exposed the weaknesses of the crypto world and reminded us of its limitations and what it means. 18. The Decentralized Internet as the First Step Toward Post-Money Economy Post-money economy simulator in the form of a free fictional game based on gift economy that tests the hypothesis of having a market system without any exchange 19. A Look at Ecozones & Their Potential Economic Benefits An ecozone is also known as a special economic zone (SEZ) and these are geographic regions in a country that has more attractive economic policies for entities 20. The Future of Finance Writing Contest by Bricktrade x HackerNoon Participate in the Future of Finance Writing Contest and win from $2000 prize pool! 21. Could Tether (USDT) Go the Way of Terra USD (UST)? Holding a lion's share of total stablecoin market for years, USDT began to lose ground to its competitors. According to The Block statistics, currently, USDT accounts for 47.99% of total stablecoin supply. As of January 2021, 1st, USDT accounted for as much as 74.17% of the stablecoin market. 22. WaaS for Finance: How Banks and Retailers Can Leverage Wallet-as-a-Service? WaaS, or Wallet-as-a-Service, is an innovative FinTech delivery model that allows financial companies to jumpstart their eWallet businesses from scratch. 23. A Beginner's Guide to Crypto Day Trading A Beginner's Guide to Crypto Day Trading 24. Understand Term Sheets  -  Part 2: Protection for Future Down-Rounds Understanding pay-to-play and antidilution provisions in a term sheet 25. Don't Be Fooled By Insanely High APYs? Seeing DeFi projects with high APYs that are the stuff of dreams might just be that. Though the potential for large returns exists, scepticism pays in the end. 26. Behind the Startup: Interview with Vent Finance Co-Founder Vent Finance is a multi-chain launchpad and accelerator that sets the stage for Web3 projects. 27. How to Buy Twitter by Building a Crowdfunding Web3 Dapp We’ll consider how we could build our own crowdfunding Web3 decentralized app (“dapp"). Ready to take on Elon? 28. Ethereum Price: When Is the Best Time To Buy ETH? All you need to do is buy coins when the Ethereum price is low and sell them when the price is high. 29. How Bricktrade is Disrupting the Property Market Using Blockchain to Disrupt the Property Market 30. How to Make Money on "Relief" During the Bear Market How to make money on "relief" during the Bear Market 31. Saving Your Money in a Crisis With Cryptocurrencies In DeFi, the yield on deposits in dollar stablecoins reaches 15-20%. I discuss the risks and where to invest for a conservated crypto-investor in 2022. 32. Elrond Blockchain’s First Lending and Borrowing Platform is Ramping Up Elrond is helping to mainstream DeFi by popularizing decentralized lending and borrowing among regular people. 33. How to Earn FREE Crypto in 2022 2021 was a great year for crypto. The market hit an all-time high, and more people than ever started investing in digital currencies. But what does 2022 brings? 34. Build to Rent DAO: Pioneering the Concept of 'Rent-to-Earn' Real estate tokenization system allows users to rent objects from a decentralized autonomous organization or DAO instead of buying it. 35. Understanding Term Sheets -  Part 1: Liquidation Preferences Liquidation preferences determine how the proceeds are shared in a liquidity event such as the sale of the company or its assets. 36. 5 Handy Apps to Power Up Your Investments in Times of Uncertainty Get the list of handy apps that will fuel your investment decisions even in the crisis period! 37. Crypto Crash Of 2022 & What It Means For The Market The recent crypto crash came as a shock to many investors and its long-term effects are still yet to be known. Either way, a lot will change in the near future. 38. Why Bitcoin Remains the Financial Asset of Choice the Long Term So far in 2022, the entire crypto market has been impacted by wider economic and political uncertainties, led by Bitcoin, with prices down more than 50% over. 39. 5 Cryptocurrencies With the Most Long-Term Potential Trying to figure out how to make money with cryptocurrency isn’t all that easy, but there’s one thing for sure: it’s definitely worth it. 40. Are We Close to Abolishing Physical Money and Bank Cards? In this slogging thread, our tech community discussed how implementing a microchip on our hands can be an innovative option instead of our bank cards. 41. Central African Republic Adopts Bitcoin as Official Currency In this thread, our community discusses the potential impacts of Bitcoin adoption as legal tender in the Central African Republic. 42. Decentralized Finance: Automation of Financial Markets The expression decentralized finance - often abbreviated as DeFi - describes  to an alternative financial infrastructure built on top of the Ethereum blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. This article highlights opportunities and potential risks of the DeFi ecosystem. I propose a multi-layered framework to analyze the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt markets, blockchain derivatives, and on-chain asset management protocols. 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43 Stories To Learn About Brick_trade

A Review of Earn, Lending and Savings Products One of the most well-known ways to increase the value of your cryptocurrency holdings and investment portfolio in recent years is through crypto lending and earn products. Due to the fact that crypto investors are increasingly focused on finding the most polished and compliant platform for crypto lending, it is vital that investors fully grasp how such crypto lending platforms work and the risks involved. : Vested Interest Disclosure The author is an independent contributor publishing via our . Be it through direct compensation, media partnerships, or networking, the author has a vested interest in the company/ies mentioned in this story. HackerNoon has reviewed the story for quality, but the claims hereon belong to the author. #DYOR brand-as-author program Understanding How Crypto Lending Works 101 In order to make an informed decision about which crypto loan platform is best for you, you must first have a thorough grasp of how they operate and their technological and lending infrastructure. The easiest approach to understanding how a crypto platform works is to concentrate on the different roles played by its various components as part of its business model, such as: Lenders are a crucial part of the crypto loan process as they provide loans to the company to generate yield on assets. In order to get a passive income from their crypto assets, they store them for an extended period of time with a crypto lending platform. Instead of selling their crypto assets, borrowers must use them as collateral to get loans. To reclaim their collateral, borrowers must also pay interest on the loans they take out depending upon the models and bonuses (using a native token) put forth by each crypto lending platform. The crypto lending platform governs the loan and borrowing procedure, it is critical for a user to read the terms of service to understand their rights and any material risks that they should be aware of. The platform may be centralised or decentralised. Depending on the kind of platform, matching orders, liquidity pools, or codes are used to govern the lending process. The following is a comprehensive selection of three cryptocurrency lending platforms, in no particular order. Best 3 Crypto Lending Platforms 1. Nexo It's no secret that Nexo is one of the most popular cryptocurrency lending and borrowing services in the world, and it's especially popular in Europe. Nexo, together with BlockFi and Celsius, is regarded as being one of the "big 3" lending platforms and has a strong reputation in the cryptocurrency and FinTech industries. With the fall of Celsius and the bailout of BlockFi. As per media reports, Nexo has also a term sheet with Vauld for potential acquisition. signed Nexo provides a crypto lending and earn product which allows users to earn Annual Percentage Yield (APY) by lending their crypto assets to the crypto lending platform. The crypto lending platform in return lends the assets to different borrowers to earn additional yield. On Nexo, the APY that customers receive is dependent on their degree of loyalty and the asset that they choose to hold their money in such as whether the users hold any native Nexo tokens. A user's loyalty level is determined by how much of their portfolio is invested in Nexo, rather than how much money they have invested. The greater the customer's loyalty level, the more APY rates they can earn in the Earn section and the lower interest rates are applicable to such borrowers. Further with Nexo, users may borrow for as low as 0% if they become Gold or Platinum members and maintain their loan-to-value ratio under 20%. On the Nexo platform, no credit checks or origination fees are required for users to borrow money. This is great for users who are holding Nexo tokens as it provides them with a competitive edge against other users using the Nexo services. In contrast to Voyager and BlockFi, Nexo does not provide typical crypto loans, but instead a crypto line of credit, which provides for more versatility in the borrowing process. Furthermore, Nexo is a pioneer in allowing users to borrow against their NFTs, making it the most asset-rich platform available. The owners of Bored Apes NFTs and CryptoPunk NFTs tokens may now borrow up to 20% of their valuable NFTs' worth - this is a great option for NFT holders. However, NFT users must conduct market due diligence before putting their NFTs as collateral due to market volatility and the experimental nature of such products. Customers may also get an additional 0.5 percent cash back on bitcoin purchases made via the site, with the amount varying according to the loyalty tier. Customers have to go through KYC and identification verification in order to buy crypto, although this will just take a few minutes. The lowest card transaction is $50, and the highest is $5,000, with a monthly ceiling of $10,000. Card transactions are immediate. Nexo Security Infrastructure Anybody that has been in the crypto world for any length of time recognises the significance of security, given the number of exchange hacks and tales of consumers losing their money that we hear. Nexo's security reputation and history are unblemished and unfortunately, there aren't many platforms that can say that. In order to safeguard money and offer $375 million in insurance, Nexo adheres to industry best practices and has worked with BitGo, Ledger Vault, Bakkt, and others. Third-party penetration testing is also carried out on Nexo's smart contracts to guarantee that there are no security holes. BitGo's SOC 2 Type 2-certified custodianship programme offers Nexo cold storage solutions and bank-grade class III vaults. Ledger Vault offers a cloud-based digital asset custody infrastructure and ensures digital assets up to $150 million. Bakkt offers Nexo cold storage solutions for Bitcoin and Ethereum that are air-gapped. Security solutions, certifications, and partners used by Nexo are shown in the image above. Secured networks with restricted access to customer information are in place. ISO/IEC 27001-certified information security management system Nexo employs to protect its customers' private data. 2. Cake DeFi The Cake DeFi’s current lineup includes Lending, Liquidity Mining and Borrowing products. Cake DeFi's loan rates are comparable to those of its DeFi competitors. In the event that the price of the native currency rises while the loan is outstanding, the advertised "guaranteed" APY increases accordingly. Cake DeFi has more than 73 million USD in rewards to its customers to date which indicates its capacity to allocate assets properly and provide users with a steady APY. paid Users deposit digital assets such as BTC, ETH, USDC, or USDT which are then locked in options contracts for a period of four weeks. The batch has a 28-day duration, beginning and ending on the Friday of each week. It's possible for customers to carry over into the following four-week term, remove their full principle and return to Cake Wallet, or take the profits only after the four-week period. Users can lend money with the assumption that it shall be repaid in full, with interest included. Users have the option of lending Bitcoin, Ether, USD Coin, or Tether (USDT). For the services Cake DeFi offers, Cake DeFi merely serves as a middleman or agent. To put it another way, Cake DeFi gives customers a "safe path" or a way to access decentralised financial services. Similar to a "black box," which gives minimal transparency and control to organisations other than itself, other CeFi systems, such as Celsius, are in sharp contrast. As a result, customers would be left in the dark about important issues like where their earnings are coming from and whether or not their money are being mixed with those of the company's operations. Cake DeFi’s belief is that in light of the difficulties that crypto investors are now facing, the industry as a whole should do more to ensure and safeguard its customers' funds which makes it one of the best crypto lending alternatives to Celsius and Voyager. 3. Crypto.com The Lending Platform offers a broad array of products with an easy-to-understand user interface. Through Crypto.com Lending, customers earn interest on their crypto investments, take out crypto-collateralized loans, receive crypto payments and trade crypto. Additionally, Crypto.com is well-known for its CRO token-based cards. All financial and risk-prevention requirements are adhered to by Crypto.com, which is a fully regulated crypto corporation. It means you won't be able to access its services, including the App and Exchange, anonymously. Crypto.com There are a number of countries where Crypto.com is now accessible. These include several in North and South America, Europe (including the UK), Australia (including New Zealand), Asia (including Singapore), and Africa (including Nigeria). You will be required to provide identification in order to complete the registration process. In order to use the platform, users must give the following: Authenticated full name Selfie with a government-issued ID to prove that you are still alive. Obtaining a Crypto.com Visa card necessitates submitting a current (within the last three months) utility bill as proof of residency. Get your account confirmed. It may take up to 3 business days to verify. On the service side, Crypto.com stores all customer money in secure cold storage facilities. An institutional-grade custody solution called Ledger Vault is used in conjunction with hardware security modules (HSM) and multi-signature keys to provide a high level of security. In addition, Crypto.com cold storage has a USD 500 million insurance coverage, which covers direct and indirect coverage through custodians, physical damage and third-party theft. Crypto.com Cold Storage and Security Crypto.com also employs HSM and multi-signature keys to safeguard its hot wallets. For day-to-day client withdrawal requests, the company's hot wallets store a small portion of its overall assets, which are enough to cover the company's daily withdrawal needs. Customers' deposits in fiat currency are protected by local rules since they are stored in highly regulated custodian bank accounts all around the world. For example, the Federal Deposit Insurance Corporation (FDIC) insures USD accounts held by U.S. clients up to a maximum of $250,000 USD. However, Crypto.com allows you to keep control of your fiat cash, ensuring that neither the company nor any of its creditors may ever claim them. Using Crypto.com's two-factor authentication (2FA) and a combination of the passphrase, password, biometric (fingerprint & face ID), email and phone verification, you can keep your accounts safe from intruders at all times. Furthermore, the DeFi wallet allows you to maintain your own private keys, which means that you don't have to depend on the platform's security. Crypto.com is a safe and regulated crypto platform that Crypto.com provides on its platform with various security certifications and examinations by renowned security auditors. Buying, exchanging, and spending cryptocurrency is a breeze thanks to Crypto.com's beginner-friendly trading interface. Its other crypto services, like the Crypto.com Exchange, DeFi Swap and Wallet, Crypto Earn, and Pay, make it a fantastic one-stop shop for all things crypto. Final Thoughts on Nexo, CakeDeFi and Crypto.com Lending Product Nexo, CakeDeFi and Crypto.com have swiftly risen to the position of one of the world's most significant crypto loan platforms. It's impossible for a platform to achieve this level of success without a strong product, platform, and people behind it. As cryptocurrency use continues to rise, lending services are becoming more popular. Users may maximize their financial assets without giving up ownership of them by using these services. Additionally, the APYs, which are far greater than those offered by regular banks, are a major selling point, as are the perks of the crypto card. Don’t forget to share and like the story!

3 Best Crypto Lending Platforms: Alternatives to Celsius and Voyager

Understanding pay-to-play and antidilution provisions in a term sheet In this series, we are looking at some of the most important provisions in a term sheet so that we know what these terms mean for our startups and which terms to negotiate. In Part 1, we evaluated liquidation preferences and how shareholders are compensated when a company or its assets are sold. In this Part 2, we understand which provisions protect startups in a future down round. What is a down round? When you issue shares at a valuation (or price) lower than the previous round of financing, this new round is referred to as a down round. As founders, we should be aware of the provisions we are adding now that could impact us materially in a down round. The two most prominent ones are antidilution and pay-to-play. 1. Pay-to-Play Why is this provision important? It ensures that only committed investors hold preferred stock and consequently, have special rights. 2. Antidilution Why is this provision important? Antidilution provision prevents investors from getting diluted in certain situations. One such situation is a down round. When does it come into effect? Antidilution provisions added in previous rounds of financing come into effect when you do a down round. What are the two different types of antidilution provisions? : All of the previous round stock is repriced to the new issuance price Full ratchet antidilution : The repricing is adjusted for the number of shares issued in this down round. Weighted-average antidilution How are number of shares calculated for the weighted-average antidilution? There are two entities to consider: Common stock outstanding Convertible securities: securities such as employee options can be converted into common stock Depending on how you calculate the total number of shares, there would be a different repricing. Can you add exceptions to these antidilution provisions? From founders’ point of view, it’s usually beneficial to add exceptions to these antidilution provisions, formally called anti-dilution carve-outs. Imagine a scenario where you want to do a down round. Your majority of investors agree to participate in this round of financing while the remaining investors do not. In the absence of anti-dilution carve-outs, your common stock holders — founders and employees — will get diluted because these minority investors have invoked anti-dilution provision. What if you had added these carve-outs though? If the majority of investors invoke the anti-dilution carve-out, minority investors must participate if they want to avoid dilution. Closing Thoughts: In this post, we learnt the following: What do pay-to-play and antidilution provision mean? What are the different types of antidilution provisions? Why you should consider adding carve-outs? The infographic below summarizes some of these key points. References: Feld, Brad and Mendelson, Jason. . Wiley, 2019. Venture Deals: Be Smarter Than Your Lawyer And Venture Capitalist Next up: Part 3: Vesting and Exercise Period : Nothing in this article constitutes professional investment advice. Please do your own thorough research before making any investment decisions. Disclaimer

Understand Term Sheets  -  Part 2: Protection for Future Down-Rounds

A practical guide to fundraising for early-stage startups with infographics and calculations Introduction The language of venture deals remains opaque and confusing to this day. This works to the advantage of industry insiders and to the disadvantage of those who are new to startups and venture capital. So for anyone interested in startups and venture capital financing - but especially founders who are planning to fundraise, I am writing this series to explain some of the most important provisions in a term sheet so that we know what these terms mean for our startups and which terms to negotiate. Let us start with liquidation preferences. What does it mean? It determines how the proceeds are shared in a liquidity event such as the sale of the company or its assets. Components : What multiple of the original investment is returned to the investor before the common stockholders? Preference : Once the preference is returned, what are the additional proceeds that investors receive? Participation How do preferences vary among different stages of financing? : Series B investors get compensated before Series A investors and so on. Stacked : All are equivalent in status and are returned preferences on a pro-rata basis. Blended (pari passu) How preferred shareholders maximize their payoff during a liquidity event? Preferred shareholders have the option to convert their stock to common stock per the conversion ratio or share the proceeds on an as-converted basis. : Payoff is the maximum of the preference and the corresponding value of the common stock. No participation : Payoff is the sum of the preference and the corresponding value of the common stock on an Full participation as-converted basis. : Cap is usually set as a certain multiple of the original investment amount. This cap is the upper limit of the payoff. Capped participation Let’s look at the payoff for investors and founders in the following scenarios. Scenarios: The startup has raised one round of financing. Acquisition price ≤ Total capital raised Common shareholders (founders, employees, etc.) do not get a penny since all the proceeds are to be returned to the preferred stockholders (investors). Avoid raising such high amount that a reasonable acquisition becomes out of the question. Acquisition price = 3–10 x Total capital raised (low acquisition price) Note that participation feature has a significant impact if the acquisition price is low. 3. Acquisition price = 20–30 x Total capital raised (high acquisition price) Note that participation feature has less impact if the acquisition price is high. 4. Acquisition price = 10-20 x Total capital raised (mid acquisition price) & more money is raised with a participation feature Note that participation feature has a significant impact if more money is raised with participation feature. 5. Multiple financing rounds & Acquisition price ≤ Total capital raised What are the benefits of liquidation preferences for investors? :
a. Provides downside protection where investors can, at worst, get their investment back
b. Ability to cash in on the upside as investors can convert to common stock Preference : Participation a. In addition to preference, the ability to share in the proceeds on an as-converted basis Closing Thoughts: In this post, we learned the following: What does liquidation preference mean? What are its main components and their benefits to investors? How do different shareholders get compensated in case of a liquidity event? How do investors maximize their payoff by negotiating for a specific participation type? How are the proceeds shared among preferred and common shareholders in different scenarios? The infographic below summarizes some of these key points. Calculations: If you are interested in understanding the math behind the above participation types, check out the spreadsheet . here References: Feld, Brad and Mendelson, Jason. . Wiley, 2019. Venture Deals: Be Smarter Than Your Lawyer And Venture Capitalist Acknowledgments: Cover Photo by Joanna Kosinska on Unsplash | Edited by author : Nothing in this article constitutes professional investment advice. Please do your own thorough research before making any investment decisions. Disclaimer

Understanding Term Sheets -  Part 1: Liquidation Preferences

HackerNoon Reporter: Please tell us briefly about your background. I work to make property investing accessible, transparent, and streamlined with SolidBlock, where I am the Co-CEO and Co-founder. Prior to that, I spent almost two decades in the financial markets. I started at a Wall Street broker-dealer as an analyst, moving to M&A and private equity, as well as financial engineering, structuring products and indices for pensions funds and family offices. I worked on the largest IPO of an Israeli real estate company on AIM and served as an executive on the largest MVNO in Israel that was listed on NASDAQ. I’ve co-founded several fintech startups, a successful marketing company in the blockchain space, and an import/export company that was acquired. I am also a regional co-chair at FIBREE, the Foundation for International Blockchain and Real Estate Expertise, the leading international network for exchanging knowledge between the real estate industry.  I have appeared as a guest speaker in over 50 conferences and events and also have a podcast (Apple podcast, Spotify: BlockSolid), and a full course on tokenization. Have also been listed in the Top 25 Blockchain and Cryptocurrency Speakers and 100 Most Inspirational Women In Blockchain. What's your startup called? And in a sentence or two, what does it do? SolidBlock makes property work for everyone. We are building a new asset class based on real estate, combining the stability of the property market growth and the efficiency of blockchain-based financial products. SolidBlock creates tradable digital assets backed by real estate that grant investors rights to revenue, dividends, or interest and allow them to benefit from the growth of their property as well as trade their assets at any time. What is the origin story? Both my partner Yuval and I (first independently) wanted to go into a real estate investment and realized how difficult it was for non-accredited or even institutional investors to get access to great deals. Yuval was approached to build a tech platform for the tokenization of St.Regis in Aspen. I heard about the deal & realized it was done by SolidBlock, tracked down Yuval who happened to live an hour and a half away and within a few months we partnered up. What do you love about your team, and why are you the ones to solve this problem? We are passionate about bringing real estate opportunities to people around the world, using blockchain technology, enabling easier access, trading, and transparency, with the goal of making real estate work for everyone. We care because we are also everyone! Our competitors are focused on providing a technical solution for fractional investment. Very few are focused on finding buyers & sellers for digital securities or creating demand and supply. Our differentiation lies in financial engineering - creating processes for product-to-investor fit and an investor network to facilitate the trading. If you weren’t building your startup, what would you be doing? If I wasn’t building my startup I would either be a Yoga instructor or I would be writing music. At the moment, how do you measure success? What are your core metrics? We have very specific KPIs of success: At least $10B in tokenized assets as a part of the networks. At least $100M per month (cUSD in circulation)in additional assets approaching the network for underwriting/trade monthly in the first year. 100,000 cUSD users by month 6 from launch and 1M users by month 12. Trade level - $20M monthly within the first year (additional 20M cUSD) What’s most exciting about your traction to date? SolidBlock is best known for spearheading the first successful commercial real estate tokenization, which raised $18 million through Templum Markets and the Indiegogo platform for the development of the Aspen St. Regis Hotel, a five-star luxe ski destination. Some of the things we have accomplished so far: 1st ever successful commercial property digital offering:  St. Regis Aspen Resort, raising $18M (see case study). Over $400K in revenue since launch Successfully closed ~$1.1M of $2.5M round in addition to $1M signed term sheet and additional commitments Partnerships with major players:  Chamber of Digital Commerce, TZero, North Capital, Realto, Entoro, and more Pipeline valued at over $100M SolidBlock expected earnings > $1.4M in the next 12 months ($100K in MMR in 12 months) What technologies are you currently most excited about, and most worried about? And why? I am definitely most excited about blockchain and its diverse applications and the implications of its use in varied fields and most obviously in fintech and proptech - where we work. I believe that I am not alone in stating that the technology that is simultaneously most frightening and quite exciting is AI. What drew you to get published on HackerNoon? What do you like most about our platform? I really like HackerNoon’s openness to publishing diverse content without limitations and censorship. Their only rule is to respect others and they don’t shy away from publishing contentious or fringe content, thereby providing readers with access to loads of new knowledge about technology embellished with style and sass. Also I really like the awesome and unique design. What advice would you give to the 21-year-old version of yourself? I would tell my 21-year-old self that “You are on the right path. Keep pushing”. What is something surprising you've learned this year that your contemporaries would benefit from knowing? This past year has taught me that building a startup is a lot less about being at the right place at the right time and more about the following methodology and getting to the market faster than your competition. Vote for SolidBlock for startup of the year, Jerusalem, Israel

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