Angel Term Sheet Evolution – Part 2 – Dan Rosen – The Rosen Light Pref Angel Term Sheet
Bellingham Angel Group Education Breakfast November 17, 2009 – Basil Peters and Dan Rosen
Highlights of Angel Term Sheet Evolution- Part 2:
- Angels used to be lazy. VCs and the Golden Rule
- How the Light Pref term sheet protects both sides
- Valuations today – pre-revenue $1 to 3 million
- The balance between protection and being ‘friendly’
- Keeping the company agile
- Why a 1X pref is most fair to the investors and entrepreneurs
- That worked well when everything was going up
- Common stock – where it works and where it doesn’t
- Differences between non-participating and participating prefs
- Getting hammered by the VCs
- Why Dan doesn’t recommend common very often
- Why angels prefer participating preferreds
- Angels have become very valuation sensitive
- Everything flows from the valuation
- The dangers if VCs follow on with participating prefs
- How the Alliance of Angels became known as better negotiators
- Don’t be afraid to walk away from a bad term sheet
- Liquidation ‘overhang’ and ‘caps’
- How the lawyers ‘helped’
- “Excel is your friend” when determining valuation
- Trading off protections and participating prefs
- Convertible notes that were profoundly unfair
- Helping entrepreneurs get in touch with reality
- Anti-dilution and why it doesn’t usually make sense
- Angels used to be ‘all over the map’ and much less sophisticated
- Fixing the cap table is sometimes too much work
- Discounts and warrants only make sense if there was a problem
- Lead investors and why it’s so important to find one
- Angels should never ‘punt the problem’
- Why Dan prefers non-cumulative dividends
- Why lawyers recommend convertible notes (its the fees)
- Everyone needs to understand the option pool impact
- Why drag alongs should apply to all decisions
- What lawyers charge for a typical term sheet
- The pre-deal cap table – one lead negotiator
- The Rosen Light Pref download and comments available here
Download the Rosen Light Preferred Term Sheet here.
Part 3 of this video includes some very valuable questions and answers from the Bellingham Angels.
Part 3 of this video is the beginning of the Q and A.
