💸 Wayraising tip #1: The top 5 areas to focus on in your Term Sheet, beyond valuation

Welcome to Wayraising tips - a series of short & sweet fundraising tips we created in partnership with Mountside Ventures, for founders in the process of raising capital.

This article focuses on the key areas founders should pay attention to in their terms sheets, beyond valuation:

Valuation is important, but should certainly not be the biggest determinant of whether to accept a term sheet.

You should pay close attention to…

1. ✋ Investor preferences — what does the return profile look like for the investor, and therefore for you as the founder upon an exit? Does the investor receive their equity ownership at every valuation or do they receive more than their shareholding? Most investors will ask for 1x non-participating preference which means they get at least all their money back first if you exit at a valuation less than the one they come in at.
2. ⏳ Founder vesting — do you give up some of your shares upon completion, getting them back the longer you stay with the business? What proportion of your shares do you keep upfront? Many funds will ask you to vest some of your shares so that if you leave the business early, they are able to claw back some of your shares to be able to parachute in another CEO.
3. 🚫 Veto rights — what controls are you giving up by taking VC money? What business decisions can you make without having to ask your new investor? It’s normal for funds to have minority protections such as the issuance of new shares, paying out dividends or changing compensation for the C-suite.
4. 💰 Net cash — how much are you taking home after all deal fees have been paid? Does the investor recharge monitoring fees, legal fees, arrangement fees, board fees? Many funds recharge their legal and due diligence fees to you.
5. 👁️ What’s the fund like to work with? Have you spoken to other portfolio companies? Do you get on with the team? It’s likely you’ll be wedded to them for at least 5 years.

🔎 What is Wayraise?

Wayraise is a fundraising readiness programme we created in partnership with our fundraisers in residence, Mountside Ventures, to increase the support we offer to our portfolio companies throughout their fundraising journey.

Read here why we decided to take on a fundraiser in residence to support our portfolio companies raising capital, and why we chose Mountside Ventures.

If you made it to the end, thank you for reading, we hope this article is useful :)

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