Angel Term Sheet Evolution Part 2

BY Basil Peters

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.