⚠️ Before you sign a GP agreement with business partners, make sure you've discussed the following 14 questions.
Please share/comment if you find this valuable 🙏
1. How does control work?
2. What happens if there's a deadlock?
3. How can owners be added/removed?
4. If new owners are added, who gets diluted to make room for them?
5. Are there separate economic streams for capital interests and carried interests in the underlying fund/syndication?
6. Are there any fee waivers to fund GP commitment at the fund level that flow through to the GP level?
7. Are owners subject to vesting?
8. What happens if someone is removed for a "cause" event (fraud, etc.)? Do they get zeroed out?
9. Are owners subject to restrictive covenants (non-compete, non-solicit)?
10. Do you have a separate GP and management company (recommended)?
11. Who is funding the entity's startup working capital?
12. Who is entitled to use the fund's investment track record?
13. How are disputes resolved?
14. Is there a buyback for owners who leave or are removed? How is the price valued?
Great list! Partnerships can be challenging, and addressing these questions upfront can save so much stress and conflict later.
The buyback clause (question 14) is often overlooked but can prevent messy exits.
Thanks for sharing.
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
I am excited to take a deep dive into HSBC's Term Sheet guide 2024.
The 2023 edition was super helpful in providing objective data to support my own analysis of the market standards of venture financing.
When negotiating terms in investments rounds investors often refer to 'market standard' as an argument for accepting terms that they have laid out in the term sheet.
This tactic often works as Founders are left in the dark not really knowing what the 'market standard' is.
A great negotiation style to push back on the 'market standard' argument is to add objective data to support your own argument.
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
Following Fran Spooner's post on the Economic provisions reviewed in the HSBC Innovation Banking's VC Term Sheet Guide 2024, here are my takeaways on the Control Terms:
🤝 This can be the most heavily negotiated section, as it covers emotive topics for founders, such as who controls the board and what percentage of their shares are at risk if they leave (particularly if they are removed from the business). These are certainly important provisions to focus on, as we have seen an increase in instructions of founder fall-outs and leavers.
🛫 Founder leaver provisions were only found in 50% of term sheets (down from 55% in 2022), although they are usually dealt with in the long form documents if the term sheet is silent. Due to the sensitivity of these provisions, it is much better to agree an outline of these provisions at term sheet stage and not wait until negotiating the long form documents.
Where leaver and vesting provisions are mentioned, they generally reflect the BVCA starting position i.e., Good and Bad Leaver provisions (68% of cases) and a 4-year vesting with a cliff (31% of cases).
🎛 86% of term sheets included an investor board appointment (including an observer right). This is actually down from 2022 (91%), which is surprising in one sense, as you might expect investors to be in a stronger negotiating position due to a decline in investments in 2023. This could reflect the increase in early-stage deals where angel investors do not always require a board seat. Nonetheless, the expectation is that board control vs board representation will remain top-of-mind in 2024 following several high-profile boardroom disagreements.
💲 82% of term sheets included drag along provisions, which is (surprisingly) down from 92% in 2022. Most founders and investors do not want minority shareholders scuppering a transaction, so our assumption is that they are negotiated in the long form documents if the term sheet is silent. Where it is included, a 75% drag threshold is most common (in 42% of cases).
Bradley Heath is up next with his takeaways of the remainder of terms, including warranties.
#termsheets#venturecapital
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
Beyond Banking: Glenn Waters, Head of Early Stage Banking HSBC Innovation Banking has provided valuable insight into the evolving landscape of Venture Capital Term Sheets.
VC term sheets vary depending on state of the mkt, specific industries, stage of start-up and preferences of individual investors involved.
This report provides insight into how we are more than a Banking Partner, have deep sector expertise & life stage expertise that scale with you and nurture the innovation ecosystem.
Great read!
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
The Marriott Harrison team was delighted to contribute to HSBC Innovation Banking’s VC Term Sheet Guide 2024. Over the next few days, I (along with Graham Halliday and Bradley Heath from the MH VC team) will highlight some of the findings – starting with “Economics”.
💲 Valuation vs structure – Valuations are down but there hasn’t been a massive shift in deal structure. Most investors still ask for the standard 1x non-participating preference and there has been a decline in anti-dilution provisions, partly due to deal stage but also, happily for founders, an unexpected focus on retaining more founder-friendly terms. Certainty for all parties appears to be a key consideration when negotiating these critical economic terms – accepting a lower valuation with a simpler structure (and avoiding a participating preference or preference multiples) - along with a renewed focus on sustainable valuations (moving away from the dizzy heights of 2021!), which all makes sense in a turbulent macro-economic climate.
❓ Options – There has been an increased use of share options (either a new pool or top up to an existing pool). This might be a result of companies identifying that good people can make or break a start-up, or holding on to cash resources to prolong runway by remunerating talent with options, or trying to fix historical equity imbalances in the founder team (which we have seen more often recently). It also seems that if a company has a well-considered and comprehensive hiring plan for the foreseeable future to ensure all parties’ (founders, key employees, existing shareholders and new investors) interests are aligned, investors are willing to accept that the pool is calculated in the post-money (diluting all shareholders rather than only existing shareholders).
👭 Syndication – 2023 saw an increase in VCs investing as syndicates, another symptom of a volatile market where investors prefer to share risk or, taking a slightly more positive spin, investors pool resource (i.e. following the crowd) into really promising start-ups. Founders should balance different considerations here: are the syndicated investors aligned, will the smaller VCs follow the lead, are they all bringing added value to the table, how much investment do you actually need (and from how many VCs)?
Picking out some more general (positive) economics-related news:
🌟 Investment activity picked up in H2 2023
⭐ Steady recovery expected through 2024 with increased cross-border investment
Aside from the economics, pleased to see another boost in the number of term sheets including a diversity clause. Whilst including a clause in a term sheet doesn’t change anything, ensuring (as part of an investment deal) that diversity forms part of a company’s culture will surely encourage people stop just talking about the importance of DE&I and start taking some position action (even if it is just at this stage for investors to please their LPs and for companies to please their investors!).
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
Day 11 of our 30-day challenge is all about Investor Agreements! 💰 If you’re in the process of raising capital, it’s essential to grasp the legal side of things.
Let’s explore some key agreements you’ll come across:
Essential Investor Agreements
Term Sheets 📄
Think of this as your negotiation blueprint! It lays out the fundamental terms of the investment, such as valuation and equity share. It’s like the first handshake before diving into the details. 🤝
Convertible Notes 💳
These are a hybrid between debt and equity. You borrow money from an investor with the promise that it will convert into equity later on. It’s a flexible way to secure early-stage funding without having to determine your company’s value right away.
Equity Financing 📈
This involves selling shares of your company in exchange for capital. While it’s a straightforward method to raise funds, it also means giving up some ownership in your startup.
Negotiation Tips 📝
Align Terms with Your Vision: Always negotiate terms that support your long-term goals. What matters more to you: a higher valuation or keeping control?
🤔 Get Legal Help:
Don’t navigate this journey alone! A skilled attorney can help you understand these agreements and protect your interests like Legal Heights.
Do Your Research: Look into potential investors. Their reputation can significantly affect your startup’s future.
Success Story 🌟
Take the example of Watch Startup. They successfully raised funds using convertible notes by negotiating favorable terms, including a reasonable interest rate and an extended maturity period. This approach gave them the flexibility they needed to achieve their growth targets without immediate pressure.
Questions 🤔
What parts of an investor agreement do you find most challenging?
How do you prioritize your needs when negotiating with potential investors?
Call to Action! 🚀
Are you ready to elevate your fundraising strategy? Start by reviewing your current agreements or drafting your term sheet. Don’t hesitate to seek legal advice from Legal Heights to ensure you’re making well-informed decisions!
Let’s keep the momentum going in this challenge! 💪
What’s your biggest insight from today’s focus on investor agreements? Share your thoughts below! 👇
🚀 Day 11: Investor Agreements for Startups! 💼
Understanding investor agreements is key when raising capital! Here are the essentials:
🔑 Key Agreements:
Term Sheets: Your negotiation blueprint.
Convertible Notes: Flexible funding options.
Equity Financing: Selling shares for growth.
💡 Pro Tip: Always align terms with your long-term goals and seek legal advice!
🤔Question: What challenges have you faced with investor agreements?
👉 Need help? Contact us for expert legal guidance tailored to your startup! Let’s set you up for success!
Founder & CEO - Legal Heights | Legal Consultant | Legal Drafting & Compliance Expert | 100 Days Challenge of Legal Mentorship | Mentor, Expert & Creator at Topmate.io | Check the link below
Day 11 of our 30-day challenge is all about Investor Agreements! 💰 If you’re in the process of raising capital, it’s essential to grasp the legal side of things.
Let’s explore some key agreements you’ll come across:
Essential Investor Agreements
Term Sheets 📄
Think of this as your negotiation blueprint! It lays out the fundamental terms of the investment, such as valuation and equity share. It’s like the first handshake before diving into the details. 🤝
Convertible Notes 💳
These are a hybrid between debt and equity. You borrow money from an investor with the promise that it will convert into equity later on. It’s a flexible way to secure early-stage funding without having to determine your company’s value right away.
Equity Financing 📈
This involves selling shares of your company in exchange for capital. While it’s a straightforward method to raise funds, it also means giving up some ownership in your startup.
Negotiation Tips 📝
Align Terms with Your Vision: Always negotiate terms that support your long-term goals. What matters more to you: a higher valuation or keeping control?
🤔 Get Legal Help:
Don’t navigate this journey alone! A skilled attorney can help you understand these agreements and protect your interests like Legal Heights.
Do Your Research: Look into potential investors. Their reputation can significantly affect your startup’s future.
Success Story 🌟
Take the example of Watch Startup. They successfully raised funds using convertible notes by negotiating favorable terms, including a reasonable interest rate and an extended maturity period. This approach gave them the flexibility they needed to achieve their growth targets without immediate pressure.
Questions 🤔
What parts of an investor agreement do you find most challenging?
How do you prioritize your needs when negotiating with potential investors?
Call to Action! 🚀
Are you ready to elevate your fundraising strategy? Start by reviewing your current agreements or drafting your term sheet. Don’t hesitate to seek legal advice from Legal Heights to ensure you’re making well-informed decisions!
Let’s keep the momentum going in this challenge! 💪
What’s your biggest insight from today’s focus on investor agreements? Share your thoughts below! 👇
Looking forward to doing a deep-dive in the 2nd edition of HSBC Innovation Banking Annual Term Sheet Guide 2024 by Glen Waters.
Some quick takeaways I noticed:
- ClimateTech and AI investment saw the greatest % increase share of total term sheets.
- Diversity clause in term sheets has increased to 11% but there's still long way to go.
- 1x non-participating liquidation preference continues to be the standard.
- Notable % increase in Seed from 14% to 29% of term sheets, demonstrating a resilience of early stage.
- 36% of Series A pre-money valuations where >£50m.
- European VC investment levels steadily recover through 2024 as investors turn to new deal activity and there will be continued momentum in early stage
- Anticipating increased cross-boarder investment from US investors into UK & European companies
More: download the report 👇
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
if you're a founder looking to raise capital for the first time or an additional fund-raise, our Term Sheet Guide is a must read to learn all about the latest market terms that Investors and Founders are signing up to.
Compiled by our Head of Stage Business, Glen Waters, the report is a must use tool for assessing how to negotiate and navigate the venture capital ecosystem.
Dive into the full report via the links and post below.
HSBC Innovation Banking, Glen Waters
Head of Early Stage Banking - HSBC Innovation Banking UK
𝐇𝐒𝐁𝐂 𝐈𝐧𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐓𝐞𝐫𝐦 𝐒𝐡𝐞𝐞𝐭 𝐆𝐮𝐢𝐝𝐞 2024
📢 Excited to announce the 2nd edition of our annual Guide based on 426 final term sheets, sourced from 21 law firms to provide an independent view of ‘market standard’ & negotiating tips.
💡 𝐒𝐨𝐦𝐞 𝐤𝐞𝐲 𝐫𝐞𝐬𝐮𝐥𝐭𝐬:
Over coming weeks I will be doing a deeper dive but some key points:
📰 𝑺𝒖𝒓𝒗𝒆𝒚: 426 term sheets analysed these were: Seed(29%), Series A(44%), Series B(20%) & Series C+(7%)
👀 𝑮𝒆𝒏𝒆𝒓𝒂𝒍 𝒕𝒉𝒆𝒎𝒆𝒔
👉Notable % increase in 𝐒𝐞𝐞𝐝: 14% (21) to 29% (23) of term sheets
👉𝐇𝐞𝐚𝐥𝐭𝐡𝐓𝐞𝐜𝐡, 𝐂𝐥𝐢𝐦𝐚𝐭𝐞𝐓𝐞𝐜𝐡 and 𝐀𝐈 represented 30% of term sheets
📈 𝑬𝒄𝒐𝒏𝒐𝒎𝒊𝒄𝒔 𝒐𝒇 𝒂 𝒕𝒆𝒓𝒎 𝒔𝒉𝒆𝒆𝒕
👉𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧: Investors remain supportive of Series A companies across a broad range of valuations; 36% of Series A pre-money vals were >£50m.
👉𝐏𝐫𝐞𝐟 𝐬𝐡𝐚𝐫𝐞𝐬: 83% of term sheets had a pref share (investor downside protection). Of these, 89% were the more founder friendly non-participating shares (as opposed to ‘double dipping’ participating prefs). In terms of liquidation multiples, 1x can be considered ‘market’ for both structures.
👉𝐒𝐡𝐚𝐫𝐞 𝐨𝐩𝐭𝐢𝐨𝐧𝐬: A new option pool/top up was in 72% of term sheets & seen in both pre&post money (see guide for ‘option pool’ shuffle).
⚡️ 𝑪𝒐𝒏𝒕𝒓𝒐𝒍:
👉𝐁𝐨𝐚𝐫𝐝: 79% of term sheets had an investor on the Board (86% if include investor observer)
👉𝐅𝐨𝐮𝐧𝐝𝐞𝐫 𝐯𝐞𝐬𝐭𝐢𝐧𝐠 & 𝐋𝐞𝐚𝐯𝐞𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧: mentioned in 61% & 50% of terms sheets
👉𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐜𝐨𝐧𝐬𝐞𝐧𝐭𝐬: seen in 78% of term sheets
✉️ 𝑶𝒕𝒉𝒆𝒓 𝒊𝒕𝒆𝒎𝒔:
👉𝐃𝐄&𝐈 & 𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐫𝐢𝐝𝐞𝐫𝐬: seen in 11% of term sheets (1% in 21) & 22% of term sheets (16% in 21) respectively
🔥 Many thanks to the lawyers who contributed (see comments below and the guide for bios) & also to those in the ecosystem: Ashley(Guinness Ventures), Andy, Antoine(Lightspeed), Chris(Outrun Ventures), Carolyn(Founders Forum Group), Dan(SuperSeed), Gerard, Hector(Episode 1 Ventures; Focal), Ladi(Diversity VC), Liam & Kit(Capsule Insurance), Sam(Hambro Perks), Reece(Concept Ventures), Rodney (Cornerstone VC), Taos CFA (dmg ventures), Tom(Atomico), Toyosi(Ascension), Triin (Sie Ventures),Vanessa(Seedcamp)
You can read & download the full report below👇
https://grp.hsbc/6046ZbF0iHSBC Innovation BankingMat Lauren; Simon#vc#termsheet
Helping entrepreneurs secure SBA and conventional financing | $350M+ funded | 150+ businesses supported | Simplifying acquisitions, buyouts, and growth.
6dMichael, the shotgun clause always crosses my mind when this topic comes up. All great points—well said.