Venture Capital Financings of Technology Companies

By: Peter N. Barnes-Brown and Jeffrey P. Steele
December 18, 2002

Chapter 3 of Internet Law and Practice, Thompson/Reuters West, 2008 and 2013

§ 3:1 Introduction
§ 3:2 Approaching prospective VC investors
§ 3:3 The term sheet
§ 3:4 Legal due diligence and corporate clean-up
§ 3:5 The initial venture fiŽnancing - —Basic terms
§ 3:6 - —Valuation - —Pre-money valuation and the employee pool
§ 3:7 - —Board composition post-deal
§ 3:8 - —Founder and employee equity compensation and vesting
§ 3:9 - —Section 83(b)
§ 3:10 Form of security— - The ubiquitous convertible preferred stock
§ 3:11 —- Liquidation preference
§ 3:12 —- Dividends
§ 3:13 —- Antidilution provisions
§ 3:14 —- Mandatory conversion into common stock
§ 3:15 - —Covenants and separate voting rights of the preferred
§ 3:16 —- Redemption
§ 3:17 - —Ancillary agreements
§ 3:18 Subsequent Žfinancing rounds
§ 3:19 Conclusion
§ 3:20 Sample legal due diligence request list
§ 3:21 Sample term sheet for a fiŽrst round venture capital fiŽnancing
§ 3:22 Sample closing agenda for a convertible preferred stock fiŽnancing

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