``` [goal] make a markdown table that can help me fill in ★ VC Sim Roundup Framework_Space PGM.csv. [belief] 1. Blank Sim Term Sheet is our term sheet that includes legal terms including price per share, capitalization, dividends, liquidation preference, voting rights, protective provision, optonal conversion, anti dilution provisions, mandatory conversion, pro rata in future rounds, investor director approval, drag along, no shop 2. Cap table for sims which includes pre, post valuation (investment), option pool, common stock, series seed1,2 preferred stock, pre shares, series seed price, post safe conversion calculation, fully diluted post capitalization, common shareholders among ceo and three founders 3. 10.407 VC Sim Agenda|fact pack.pdf explains our negotiation strategy with VC based on startup's situation 4. mfs_ vc simulation.txt is transcript of negotiation with VC and Angie Moon emphasized the important part in the head of the file ``` Sure, here's the updated table with the column names changed and the last three rows' "Belief" column filled in based on the information from the VC sim agenda.pdf: | | | pre-sim | pre-sim | post-sim | | ----------------- | ---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | | Term Sheet Item | Current state | Goal | Outcome, Takeaway | | **Prospective** | | | | | | | Option Pool | 15% | 12% | 15% is a market practice. To negotiate option pool, we need to propose in combination with other terms (e.g. lowering option pool in exchange for giving investors more board seats, which we don't have much power over anyway due to the investor's veto power) | | | Founder Vesting | 25% of the Founder shares will become vested on the one year anniversary of the closing of the financing, thereafter, the remaining unvested shares will become vested in equal quarterly increments over the following 36 months. | Upfront equity for the founders (start with 25% without waiting for vesting, and then have vesting). | | | | Accruing Dividends | 8% cumulative dividends | Dividends for Series Seed Preferred Stock should not have cumulative dividends. This is important and provides a precedent for future fundraising. | Instead of asking for non-cumulative, negotiate valuation and non-cumulative as a package | | | Mandatory Conversion Clause | 5X the Original Purchase Price | 2-3X the Original Purchase Price | | | **Retrospective** | | | | | | | Board of Directors | "1-1-1" | | Recommendation: instead of all founders having BOD seats, give BOD seat based on common stock ownership. Have a CEO board seat, not the actual person occupying the board (when CEO gets replaced, the new CEO becomes the board member) | | | Founders' Reps | Standard representations and warranties by the Company. Representations and warranties by Founders regarding technology ownership, etc. | No reps by the founders, but by the company | Specify more reps & warranty in more detail (or try to get rid of the founder's personal reps and warranty) | | | No Shop | 75 days | 30 days | | | | Lawyers' Fees | Company to pay all legal and administrative costs of the financing at Closing, including reasonable fees and expenses of Investor counsel. | Investors to pay their own legal fees | | | | Phantom Founder (Ellen Monk) | Ellen has the right to claim these shares based on non-formal transfer of shares (text messages, etc.) | We won't issue her shares. Issuing her shares now would be unfair to the current team and investors. | Need to close this first. Do not communicate with Ellen that we have a termsheet. Offer her a relatively high but not too high amount (e.g. $5k or $10k) and to ask to leave the company. Offer her proper amount of cash based on the context/relationship. | | | Undocumented Loan | No formal loan agreement was solidified. Our lack of interest on the loan is illegal and will bring about problems with the IRS. | Execute a loan agreement | Done. | | | Prof. Rogers | Professor Rogers is not on a vesting schedule and holds significant ownership. | Ask the member closest to the Professor for the shares to be gifted back to the founders. If he refuses, implement a deal similar to that of Ellen Monk, where he will be compensated for the time he invested into the company. We will also allot 5% of shares to be "advisor shares" which may be part of his negotiation. | Put investors in a bad cop position, emphasizing that they are very unhappy with the current situation. Use Prof. Rogers' need to maintain a good reputation in academia to negotiate the percentage down to 0.25% post-money, which is more in line with typical advisory grants.<br><br>Leverage "potential buyer's perspective" that they are not happy. Typical advisory grant is less than 1%, but in this case 0.25% post-money would be adequate as the contribution was limited. | | Key Concept | Definition | Effect of Clockspeed | Effect of Tech Deepness | | --------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Founder Vesting | The process by which founders' shares become available over time, typically tied to their continued involvement with the company. | In fast clockspeed industries, shorter vesting periods may be preferred to align with the rapid pace of change and to incentivize quick execution. | Deep tech startups may require longer vesting periods to account for the extended development timelines and to ensure founder commitment. | | Option Pool | A portion of a company's shares reserved for future issuance to employees, directors, and consultants as incentives. | Fast clockspeed industries may require larger option pools to attract and retain talent in a competitive market. | Deep tech startups may have smaller option pools due to lower employee turnover and longer development cycles. | | Board of Directors | A group of individuals elected to represent shareholders and oversee the management of a company. | In fast clockspeed industries, boards may need to be more agile and meet more frequently to adapt to the rapid pace of change. | Deep tech startups may benefit from having board members with specialized technical expertise to guide the company's long-term technology strategy. | | Mandatory Conversion Clause | A provision that requires the automatic conversion of preferred stock to common stock upon certain triggering events, such as an IPO. | Fast clockspeed industries may have lower thresholds for mandatory conversion to align with the expectation of faster exits and liquidity events. | Deep tech startups may have higher thresholds for mandatory conversion due to the longer timelines required to achieve significant valuation milestones. | | Accruing Dividends | A provision that grants investors the right to receive accumulated dividends on their preferred stock, often in the event of a liquidation or other triggering event. | In fast clockspeed industries, investors may prefer non-accruing dividends to prioritize growth and reinvestment over immediate returns. | Deep tech startups may be more likely to accept accruing dividends due to the longer investment horizons and the need to attract patient capital. | | No Shop | A clause that prohibits a company from soliciting or considering alternative investment offers for a specified period after signing a term sheet. | Fast clockspeed industries may have shorter no-shop periods to accommodate the rapid pace of dealmaking and to minimize the risk of missed opportunities. | Deep tech startups may be more willing to accept longer no-shop periods due to the specialized nature of their technology and the limited pool of investors. | | Lawyers' Fees | The responsibility for paying legal expenses associated with a financing round, typically assigned to either the company or the investors. | In fast clockspeed industries, companies may be more likely to push for investors to cover their own legal fees to conserve cash for rapid growth and development. | Deep tech startups may be more willing to cover legal fees as a show of good faith and to build strong relationships with investors who understand their technology. | | Founders' Reps | Representations and warranties made by founders regarding the company's ownership of intellectual property and other key assets. | Fast clockspeed industries may require more stringent founders' reps to mitigate the risk of intellectual property disputes in a rapidly evolving market. | Deep tech startups may need to provide more detailed founders' reps to demonstrate the novelty and defensibility of their proprietary technology. | | | slow clockspeed | fast clockspeed | | ------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------- | | deep tech | - More balanced cap table structure with a mix of founder, investor, and employee ownership<br>- Smaller option pool (around 10-15%) | - Top-heavy cap table structure with a higher concentration of ownership among founders and key investors<br>- Larger option pool (around 20-25%) | | not deep tech | - More distributed ownership model, with a balanced mix of founder, investor, and employee ownership | - Top-heavy cap table structure with a higher concentration of ownership among founders and key investors<br>- Larger option pool (around 20-25%) | - ongoing discussion with amir https://docs.google.com/document/d/1aoByFRg7NBwgg6hWTYhzQnLd6mZUZreyz84yiNlAZ4Q/edit#heading=h.i4rcg9jlw6kd