- Source link: https://feld.com/archives/2005/01/term-sheet-price.html
- TL;DR: Brief advice regarding price that covers option pools, warrants, and best practices for negotiating price
- How helpful?: 4/5 ****
- Topic Tags: term sheets, price, option pool, warrants
- Relevant questions addressed:
- What are some key concepts to know about when negotiating price on a term sheet?
- Summary bullet points
- Venture funds really care about two things when doing investments:
- Economics
- End of the day return investor will get, terms that have direct impact on such a return
- Control
- Mechanisms which allow investors to control the business/veto certain decisions
- OPTION POOL:
- Both company and investor want to make sure the company has enough reserved shares of equity to motivate its workforce
- While large option pool means more options are available for employees, it also effectively lowers the pre-money valuation
- WARRANTS
- Like with stock option allocation, lowers valuation for the company.
- Create lots of unnecessary complication later down the road
- Best way to negotiate price: have multiple VCs interested in investing in the company
- Follow up links