Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

VC > 4: PE Contracts > Flashcards

4: PE Contracts Flashcards

1
Q
  1. Term Sheets
A
  • A contract; or an anchor before further due diligence.
  • VC typically offers term sheet to the potential portfolio company
  • Non-binding agreement
  • Basic terms and conditions under which an investment will be made
  • valuation, investment amount, percentage stake, voting rights, liquidation preference, anti-dilutive provisions, and investor commitment etc. …..
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q
  1. Due Diligence
A
  • “Selskapsgjennomgang”
  • “Full investigation of a product and transaction before the transaction takes place”
  • Research in company, collect info, investigation
  • Examination of financial records before entering proposed transaction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q
  1. Fully Diluted Basis
A
  • Assumption that all preferred stock is converted and all options are exercised
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q
  1. Fully Diluted Share Count
A
  • Total number of common shares after all sources of conversion are exercised.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q
  1. Capitalization Table
A
  • Pre-Financing compared to Post-Financing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q
  1. Proposed Ownership Percentage
A
  • Proposed ownership to investor
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q
  1. Tranches
A
  • Investments over multiple periods

- Common in weak markets (post-boom e.g.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

OPP

A

Original Purchase Price

  • Price per Share
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q
  1. Aggregate Purchase Price (APP)
A
  • Price paid for all shares of a security
APP = OPP * shares purchased
APP = P * #
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q
  1. Pre-Money Valuation
A

Market Cap before VC investment

Post Market Value – Investment = Pre-Money Valuation (15 – 5 = 10m)

P * Pretransaction (fully diluted share count) (1 * 10 = 10m)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q
  1. Post-Money Valuation
A

Similar to market cap for public companies

PMV = P * Fully Diluted Share Count (1 * 15 = 15)

PMV = Investment / proposed ownership (5m / 0,33 = 15)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q
  1. Dividend Preference
A

Preferred get paid dividends first

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q
  1. Dividends for firms that VC buy
A
  • Rarely happens, start-ups

- Must use the money to accelerate the growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q
  1. Accrued Cash Dividends
A
  • Liquidation Dividend.

- Dividend not paid until the deemed liquidation. Wants to hold money in the company to accelerate the growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q
  1. Stock Dividend is called
A

Payment-in-kind (“PIK”)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q
  1. Payment-in-kind (“PIK”)
A
  • Stock Dividend
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q
  1. Employee Stock Pool
A
  • Employees get shares as a incentive
  • Usually call options on common stocks
  • Their share gets usually lower for later rounds, as more investors come with larger sums
18
Q
  1. Cumulative and noncumulative Dividend rights – Difference
A

Cumulative: Dividend MUST be paid. Either at dividend date, or at a later stage. If it happens at a later stage, there might be with a simple or compounding interest rate

Non-cumulative: Does not have to pay unpaid or omitted dividend. Less attractive.

19
Q
  1. Deemed liquidation event
A
  • Company sold
  • Merged
  • Shut down, etc.
20
Q
  1. Liquidation preference
A
  • Who gets money first. Hierarchy.
    1: Bondholders
    2: Preferred stockholders
    3: Common stockholders
21
Q
  1. Qualified Public Offering (QPO)
A
  • Automatic conversion

- E.g., from preferred to common if OPP goes 5x today’s price

22
Q
  1. “Pari passo”
A
  • All with preferred stocks get paid at the same time
23
Q
  1. 2x or 3x liquidate preference
A
  • Investors are paid back double or triple their original investment before any other (juniors) get paid
24
Q
  1. Anti-Dilution Protection
A
  • Protect the value of the investors shares in the event of a “down round”
  • Protect them from dilution – from cheaper prices at a later stage
  • Without this, they would get a less % ownership than they originally thought
25
Q
  1. Redemption Rights
A
  • Feature of preferred stock that allows investor to force company to pay back the investment
  • Rarely happens (?)
26
Q
  1. Restrictions private transactions
A
  • Stocks purchased with a private transaction is restricted
  • Cannot be sold to a public offering
  • Must register the transaction
  • Demand registration rights
  • Piggyback registration rights
27
Q
  1. Demand Registration rights
A
  • Force company to register the transactions for their shares
  • Costly
  • Have more influence; can demand IPO
28
Q
  1. Piggyback registration
A
  • Register unregistered stocks
  • Inferior to demand registration rights; cannot force IPO
  • More common than Demand type
  • Cheaper
29
Q
  1. Piggyback versus Demand
A
  • Piggyback less costly

- Demand gives more influence and power; can demand IPO

30
Q
  1. Qualified Institutional Buyers (QIBs)
A
  • Institutes with more than $100m investment assets
31
Q
  1. Vested
A
  • Stocks to employees
  • Usually given over time
  • Incentive to work hard
32
Q
  1. Step Vesting
A
  • Stocks to employees

- Step: Annually, Quarterly etc..

33
Q
  1. Cliff Vesting
A
  • Stocks to employees

- All given at once

34
Q
  1. Transfer restrictions
A
  • To prevent the founder of selling he’s shares
35
Q
  1. Take-me-along / Tag-along-rights
A
  • Minority shareholders get the chance to join the sale of a majority shareholder
  • To protect the minority shareholders
36
Q
  1. Right of first offer
A
  • Can buy or bid on an asset before the owner tries to sell it to a third party
37
Q
  1. Right of first refusal
A
  • Right to buy before others
38
Q
  1. Drag-along right
A
  • Major shareholder can force minority to join a sale
  • To protect the majority interest
  • E.g., A owns 51% of the shares. With this clause, A can force the remaining 49% to sell their shares to an external investor
39
Q
  1. Offering process
A

• Two steps:

  • Term sheet contains clauses to be negotiated
  • Often limits E’s ability to bargain with other investors
40
Q
  1. Final Contract
A

• Several elements

  • Baseline legal rules in any jurisdiction
  • Firm’s character
  • Shareholder agreements
  • Employment contracts

VC (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions