Brian Caulfield presents on Investor Documentation

Brian Caulfield of Trinity Venture Capital visited the HotHouse Program today to do a two hour presentation on Investor Documentation. The subtitle of the talk was From Term Sheets to Sale and Purchase Agreements and everything in Between. Brian was a co-founder of two succesful Irish software companies Exceptis and Similiarity Systems.
He kindly provided a copy of the slides after the talk, but the slides don’t communicate the wealth of personal knowledge Brian has in this area. He made a number of key points that stayed with me,

  • Don’t obsess about the percentage of the company you will retain after investment. Instead focus on the “cash waterfall”, e.g. what is likely to be left after the preferences pile has been discharged and any interest or other exit options have been exercised. He worked through three examples of investment and three exit scenarios where the share spilt on investment and exit was radically different.
  • People confuse good leaver/bad leaver. If you leave the company as a founder and the VC doens’t want you to go, that that is considered a bad leaver e.g. you leaving will impact the valuation of the company. If you leave the company and the VC can’t wait to see the back of you, then that is a good leaver. Bad leaver is likely to feel the full weight of any penalties because of their impact on company valuation, good leaver is likely to get a pretty reasonable goodbye package just to get him out the door.
  • A Well Thumbed bible is a problem. If you are spending a lot of time consulting the investor documentation then you are probably in trouble. These documents are not instruments that should be used to run a company.
  • Multiple Exit prefs and ratchets are less common. The penal terms circa 2001 are less common this days. Exit multiples proved to be a complete turn off to subsequent investors and ratchets encourage very short term thinking.

An excellent talk all round for anybody starting a company who is planning to raise VC money.

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