Deal Terminology Flashcards
Convertible Debt
Bridge loan waiting for other investors to participate, converts into equity at price of upcoming financing (w/ discount)
Liquidation Preference
Multiple of original investment returned
Participating
Receive participation amount then share in liquidation proceeds on as-converted basis (common stock)
Pari Passu vs. Stacked Preferences
Share pro-ratably; preferences on top
Pay to Play
Investors must participate on pro rata in future financings in order to not have their stock converted into common stock
Double Trigger Acceleration
Accelerated vesting occurs if 1) an acquisition and 2) employee is fired by the acquiring company
Option Pool
Amount of company reserved for future issuance to employees. Increasing can dilute existing shareholderd
Full Ratchet Antidilution
If company issues shares at lower price, then earlier round price is reduced to price of new issuance
Weighted Average Antidilution
Most common; # of shares issued at reduced price is considered in repricing of previous round
Broad-based Provision
Includes common stock outstanding and common stock could be obtained by converting all options, rights, securities
Protective Provisions
VC must consent to: change terms of stock, authorize more stock, issue more senior stock, buy back common stock, sell the company, change the certificate of incorporation, change size of board, pay a dividend, borrow money
Drag-Along Agreement
Gives subset of investors ability to force all investors and founders to do a sale of the company
Drag-Along Agreement
Gives subset of investors ability to force all investors and founders to do a sale of the company
Conversion
Allows buyers of preferred to convert to common at any time (e.g. for a liquidation)
Automatic Conversion
Automatically converts to common stock at certain price (allows investors to hold up IPO if doesn’t auto-convert)
