Sunday, September 25, 2011

Term sheet advice for entrepreneurs from GigaOm

GigaOm features a good, nuts and bolts article on the Top 5 things you should know about term sheets today.

They cite:
1. Valuation
2. Resetting vesting
3. Liquidation preferences
4. Protective provisions
5. Expanding the options pool

And they provide good basic info about what to expect and what to look for.

I would only add this: When BlogHer was looking for its first round of funding, Lisa Stone and I met with entrepreneur Caterina Fake (she of Flickr and Hunch fame). She shared some timeless advice with us that I reference all the time, and cite as the single most useful piece of advice I ever got. Her advice was to prioritize:



Before you take a dime, hey, for that matter...before you partner or hire, you better make sure you trust the people involved, that you feel they get you. Perhaps even more importantly, you want them to trust *you*, to respect what you have built. Finally, they should bring value beyond the money...strategic insight, key industry connections, you name it. You're getting hitched, make sure it's a relationship that can last and thrive.

To understand Terms over Valuation as a priority, read the GigaOm post. Hearing high valuation numbers can put stars in your eyes, but as the cliche goes: It's better to walk away with a reasonable chunk of a smaller exit than to have a high exit out of which you get nothing. Usually, if not always, higher valuations come at the sacrifice of favorable terms for the founders and common shareholders. Know what you're signing up for and protect your interests. A valuation does not an exit price guarantee, so don't be seduced!

So there are your weekend words of wisdom!

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