Term Sheets: Six to One - Half a Dozen to the Other (Part 1)
This was going to be one post, but it reached 5000 words, so I broke it into two. If Vinod Khosla is standing there ready to write you a check for $10 million, perhaps you should take the money (and not worry about the 1x preference with full participation and 8% dividend) before he changes his mind. These days, clients are having a hard time finding any financing. So, almost always, you take what you can get. However, let’s engage in the willing suspension of disbelief. A name brand VC has handed you a term sheet with everything slanted her way. You are...
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Dividends pay dividends - or do they?
As a general proposition, with respect to dividends in venture capital style preferred stock, there are two main choices and a third that is rarely; but not never, seen, that is easy to comprehend and then there is a fourth choice that is rarely, seen and is hard to understand, but occurs with some frequency. You might ask, "What is it?" But, before we go and make our visit, let’s do a quick review of the dividend provisions that are more commonly seen....
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Dividends
I recently had occasion to look back through the data we have gathered on the presence (or absence) of cumulative accruing dividends in New England transactions and noticed what appears to me to be an interesting pattern. According to our research, 55% of Series A transactions had cumulative accruing dividends ranging from 6% to 10% per annum (and, obviously, 45% did not have such dividends). But, only 33% of Series B and later round transactions had these dividends (and the rates ranged from 6% to 8%). So, 67% of later round financings did not carry dividends. The sample is small (covering under 100 transactions)...
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