Startup Funding Espresso -- 3X in 3 Term Sheet Walkthrough
Startup Boards -- 3X in 3 Term Sheet Walkthrough Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. The TEN Capital Early Exit term sheet includes a 3X redemption right, giving the investor the sole discretion over their right to 3X their investment at the three-year mark from the date of the investment.\xa0 A redemption right gives the investor or startup a right to redeem an ownership stake in the company.\xa0 The term \u2018Investor Sole Discretion\u2019 means the investor has the sole decision on taking the redemption right. The company typically pays back in a lump sum or a series of monthly payments spread over 6 to 12 months. Since it can be a rather large cash outlay, some companies start escrowing money a year in advance. If the company cannot pay, then a workout plan is negotiated. The terms of the redemption right give investors consent rights over the company\u2019s cash expenditures.\xa0\xa0 There\u2019s an interest rate set in the note for ongoing accumulation while the funds are kept in debt form.\xa0\xa0 The interest is not paid out but rather rolled into the equity amount should the investor give up the redemption right and go onto the company\u2019s cap table. In the event of an early exit, the interest payment continues till the debt is paid off.\xa0 The returns are treated as long-term capital gains. Startups using this structure include tech, healthcare, and consumer product goods with at least $500K of annual revenue.\xa0\xa0 If the revenue is lower than that, the company is at risk of startup failure. If it\u2019s above $500K, then it will most likely remain an ongoing business.\xa0 If the company declares bankruptcy, then depending on the outstanding debt the company is holding, the investor could lay claim to the assets, which in most cases include the patents.\xa0\xa0 There is also an opportunity to take over the business.\xa0\xa0 Finally, it\u2019s a tax return write-off. Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.Let\u2019s go startup something today. ___________________________________ For more episodes from Investor Connect, please visit the site at: \xa0 Check out our other podcasts here: \xa0 For Investors check out: \xa0 For Startups check out: \xa0 For eGuides check out: \xa0 For upcoming Events, check out \xa0\xa0 For Feedback please contact info@tencapital.group\xa0\xa0\xa0 Please , share, and leave a review. Music courtesy of .