Devoted to Corporate Attorneys, Corporate Lawyers, and Corporate Counsel

On August 9, 2007, Michael Glaser of Perkins Coie LLP gave a lecture on terms that matter when negotiating with a VC.  He said to look at liquidation preference.  The VC usually wants to get its money out first.  For example, if the VC puts in $5 million, it will want the first $5 million from an exit deal.

Anything other than 1X preference is bad for the VC.  The closer the founder gets to 1X preference, the better for the founder.  The founder should review different exit strategies and think about the motives of investors.  The VC will not invest in something less than at least 3X-5X usually.  The VC usually prefers 10X.  It is unlikely a VC will go along with an exit scenario if it is not able to get the amount of money that it wants from the transaction. 

The VC usually wants a board seat.  The founder needs to make sure that it has a board seat that is not tied to employment.  For example, the CEO is usually a board member, but the CEO may be terminated by the board so the founder needs to make sure that it has a seat other than the seat filled by the CEO.