The Role of Entrepreneurs
What does an entrepreneur need to do before even trying for a formal term sheet?
An entrepreneur need to prepare a presentation and business plan to submit to the potential investors they have identified. According to Berkery, 2008, the entrepreneur should consider are “propose that the stock option pool be put in place after the investment this will reduce the dilution experienced by the preexisting shareholders.” (pg. 171) “They need to understand from a legal process how to manage the process if they receive a VC term sheet.” (“Mars”, 2012)
The actions the entrepreneur needs to identify and take are;
Pre-money valuation is the company’s worth before the investor’s money is invested
Liquidation process which is how proceeds are distributed in event of a sale.
Option pool is where stock reserved for allocation to future employees, consultants and directors also affects the entrepreneur’s stake.
Board composition, a good board has a balance between representatives of the executives, the investors, and external, nonaligned third parties. Make sure the board is balanced.
Founder vesting is sometimes required if they own stock. The investor may require the shares of stock be vested over a period of years.
Berkery, D. (2008). Raising venture capital for the serious entrepreneur (1st ed.). New York, NY: McGraw-Hill.
Venture Capital Term Sheet, (2012) retrieved from http://www.marsdd.com/articles/venture- capital-term-sheets/ June 26, 2013
Incentive problems arise in the course of the firm’s operations. Firm managers have many opportunities to take actions that benefit themselves at the expense of outside investors. What actions can outside investors take to ensure reward equity?
An entrepreneur need to prepare a presentation and business plan to submit to the potential investors they have identified. According to Berkery, 2008, the entrepreneur should consider are “propose that the stock option pool be put in place after the investment this will reduce the dilution experienced by the preexisting shareholders.” (pg. 171) “They need to understand from a legal process how to manage the process if they receive a VC term sheet.” (“Mars”, 2012)
The actions the entrepreneur needs to identify and take are;
Pre-money valuation is the company’s worth before the investor’s money is invested
Liquidation process which is how proceeds are distributed in event of a sale.
Option pool is where stock reserved for allocation to future employees, consultants and directors also affects the entrepreneur’s stake.
Board composition, a good board has a balance between representatives of the executives, the investors, and external, nonaligned third parties. Make sure the board is balanced.
Founder vesting is sometimes required if they own stock. The investor may require the shares of stock be vested over a period of years.
Berkery, D. (2008). Raising venture capital for the serious entrepreneur (1st ed.). New York, NY: McGraw-Hill.
Venture Capital Term Sheet, (2012) retrieved from http://www.marsdd.com/articles/venture- capital-term-sheets/ June 26, 2013
Incentive problems arise in the course of the firm’s operations. Firm managers have many opportunities to take actions that benefit themselves at the expense of outside investors. What actions can outside investors take to ensure reward equity?