Fundraising advisor, Mountside Ventures, today released their first Futures Table guide, titled “Demystifying the Venture Capital Futures Table.” The report provides insights from 203 global venture capital investors, with over £11 billion in assets under management, investing in more than 1,000 deals a year, on typical terms they offer. for founders. The report published in partnership with Landscape VC and Beauhurst.
“The timeline is an important tool for founders to dictate the terms under which an investment will be structured. While founders can rely on their advisors (like us!) to help them do this, having a prior understanding of the market, the different types of investors, and why this is. influence their terms, providing an invaluable advantage as you begin your fundraising journey” says Jonathan Hollis, Managing Partner of Mountside Ventures.
The goal of the report is to increase transparency in the early-stage fundraising ecosystem by demystifying the world of founders’ glossary, as well as providing a benchmark for VCs on how co-founders are doing. Their business is investing and how competitive their terms are.
“We wanted to give entrepreneurs the know-how to be able to understand the key components of a term sheet. This is a useful benchmarking exercise, even for founders who have raised funds before and know their way around a term sheet; The “market standard” is not a static concept, says Jonathan Hollis.
Highlights of the Report Include…
Sharing options: 80% of all investors surveyed expect preferred stock rather than common stock, with the most common being a 1x opt-out liquidation incentive. Only 14% of such investors expect a preference participation.
Pricing: Beauhurst’s market insights show that despite the growing rumors of price squeeze, this is not yet reflected in the data. Between 2011 and 2021, the average value of money has more than tripled; increased from £6 million in 2011 to £29 million in 2021. A big contributing factor to this growth was the increase in large transactions during this time period.
Fee: Most investors charge their invested companies a fee to cover their fund’s operating costs (19% charge no fees). These fees can be broken down into two components: one-time transaction fees (e.g., external legal, commercial, and financial due diligence fees), and ongoing, annual management fees, which are typically pre-calculated. (e.g. arrangement fees, board and supervision).
Looking at all types of investors, the majority of investors (about 70%) deposit their trading fees in the companies they invest in. On average, these fees are about 1% of the investment.
VCs are less likely to charge management fees to invested companies than other types of investors, as the majority of VC funds charge management fees to their limited partners (typically 15% during the cycle). fund period) than their portfolio companies. The most common fee structure for investors is 1%-2% of the fund size. On the other hand, EIS and VCT investors are more likely to charge management fees on their portfolio companies. The most common fee structure for investors is 5%-7% of the check size.
Board of presence: The majority of investors (about 80%) would expect a board seat, especially if they are leading the round. Usually, this will be accompanied by a list of Reservations by the Board of Directors over which the Employer Director will have veto power.
Vesting Founder: There is considerable variation in the investor context of the “market” to the disputing founder, with no clear approach to the required share ratio or the schedule and terms of the dispute. In our experience, this is the most hotly debated and negotiated area in the terms table. However, the survey made it clear that almost all investors (98% of those surveyed) would claim the opposite of a founder’s share ratio; The most common position is that such stocks will have a monthly value over a period of 4 years, with a spread of 12 months.
Share options: The vast majority of investors, regardless of type and stage, require founders to create or fund their stock options pool. The “market standard” for stock options is 5-10% of total equity (57% requires this), although many funds require 10-15% (32% ask for this). This is important for investors to see that founders have top value to incentivize existing management teams and attract new talent. As expected, for the previous round, founders were more likely to be required to dedicate a higher share of equity to equity options.
Monopoly period: 35% of investors expect a 4-week exclusivity period, which acts as a binding clause in the terms table.
Transaction progress: the majority of funds (about 50%) are expected to take 8-12 weeks to do their due diligence and agree equity documents. The fastest funds can complete the investment within 2-3 weeks; This data may represent small check sizes, with limited due diligence.
Chris Smith, Managing Partner at Playfair Capital.
https://techround.co.uk/startups/term-sheet-market-standard/?utm_source=rss&utm_medium=rss&utm_campaign=term-sheet-market-standard Is my term sheet the Market Standard?