Venture Capital Negotiating issues

If companies in negotiations with venture capital firms, there are several issues that needed to be defined and agreed. This article describes the main issues.

Valuation. Valuation is the most prominent negotiating issues. Valuation is the price for the company, which invests in venture capital. The assessment determines what percentage of the company, the investor is buying for their capital.

Timing of investments. Many investors require a large amount ofCapital, but will help to ensure that the capital for the company in installments. Often these rates are to be made only if already designated milestones are achieved.

Vesting of stock Founders'. Such as capital, investors often prefer that given shares to founders and employees in key positions in installments. This is known as the vesting period.

Change in the management team. Some investors insist that additional or substitute management employees hired after those used on their investments. This allows investorsadditional assurance that lead the company's business model. An important question to a hearing regarding the amendment of the management team is the amount of shares or options, the new management team members will be issued, since it will dilute the holdings of the founders.

Employment agreements with key founders. Venture capitalists typically do not want companies to employment agreements that limit the circumstances under which employees can be dismissed and / or limits haveCompensation and amounts of benefits that are too high. Other major issues of employment with venture capitalists and restrictions on activities after termination of employment and workers' compensation will be negotiated at the end.

Company Rights. If the business has an important product of intellectual property (IP), investors want to ensure that it is a company, and not an employee of a company's IP. In addition, investors will want to ensure that new inventionsawarded to the company. For this purpose, can negotiate investors that all employees must sign confidentiality and invention assignment agreements.

Exit Strategy. Investors are much on how they are going to focus "cash out" their investment. In this context, they will negotiate for registration rights (both demand and piggyback); rights to participate in any sale of shares by the founders of (Co-Sale)-Rights, and possibly a right to the company to redeem their shares under certain powerTerms.

Lock-Up Rights. Venture capitalists can use a lock-up period of the term sheet stage. The "lock-up period is usually 30-60 days, a period in which the investor has the exclusive right, but not the obligation, to make the investment. Investors typically lead due diligence during this period without fear that other investors will be without prejudice to their chance to invest in the company.

Each of these aspects are crucial in raising venture capital, since the outcome can besustainable impact on the success of the company and the wealth potential of the company founders and management team. Since VCs are very experienced in these matters, and have great skill in negotiating them, should companies that are venture capital raise, try, consultants, also have the experience and know-how.

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