Terms in Down Times
In a recent board meeting for a client, one VC director described the current investment climate as follows: "flat is the new up 50%." Assuming he is right, and I think he probably is, several things follow. Some of them are obvious. Valuations are down; it is harder to get money than it was just a few months ago etc.
However, here is another prediction (perhaps it is obvious as well). Certain deal terms that we have not seen since 2001 will start cropping up like mushrooms after rain. Look out for full-ratchet antidilution provisions and multiple X preferences. Also, you may want to review a section of your preferred stock that you may not have paid much attention to -- your antidilution provisions -- because they will be triggered by a down round.
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