Last Updated 26 Jan 2021

Trendsetter: Negotiation and Term Sheets

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Learning Objectives

  1. The entrepreneur/VC relationship
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  3. Exposure to deal term sheets
  4. Moving beyond valuation
  5. VC negotiations

Entrepreneur/VC Relationship Entrepreneur VC 3

Provisions to address adverse selection

  • Provisions to facilitate monitoring/control rights to information and board seat employment contracts and termination rights
  • Provisions to enable harvesting
  • Protection of standing anti-dilution provision preemptive rights and right of first refusal

Case Discussion Questions

  1. Calculate the pre- and post-money valuations for Trendsetter under both term sheets.
  2. What would the payoffs to the founders and the VC be if Trendsetter is acquired in a transaction that values the firm at $10 million? 25 million?
  3. What are the main differences and similarities between the two term sheets?
  4. If you were the entrepreneur and could not negotiate any of the terms in either sheet, which one would you prefer and why?
  5. How would you seek to alter the terms in each term sheet during negotiations with the venture capitalists?

Trendsetter Inc. Overview

Term Sheets: Key Provisions

  1. Valuation
  2. Dividends
  3. Liquidation preference
  4. Election of directors

Scorecard Provision

  1. Valuation 

  2. Dividends Winner Reason(s)

  3. Liquidation

  4. Directors 

Trendsetter: Negotiation and Term Sheets essay

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