Startup Funding Espresso -- 3X in 3 Terms Sheets
Startup Boards -- 3X in 3 Terms Sheets Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. The biggest challenge in investing in startups is finding the exit.\xa0\xa0 Time value of money is important and should be part of your return metrics. Startup investors look for a 44% IRR.\xa0\xa0 IRR is Internal Rate of Return and represents the return on investment with respect to time, unlike ROI, which is return on investment without respect to time.\xa0\xa0 Startup investors occupy a unique place in the startup funding ecosystem.\xa0\xa0 Startup investor funding is the first money in after family and friends funding.\xa0\xa0 The longer you stay in the deal, the greater your risk for dilution by follow-on investors.\xa0\xa0 The key to a successful exit is a deal structure that gives some control after making the investment. Equity-only term sheets give investors little say in the future of the company or how to exit.\xa0\xa0 To achieve an exit, you must define it yourself, as the vast majority of startups will not do so.\xa0 You must have it in writing before you invest. Trying to come to an agreement with the startup after investing is almost impossible as the gap between the startup and the investor is too great to close.\xa0 One way to define the exit is to add redemption rights into the agreement. An example of this is the 3X in 3 terms sheet. The deal structure is a Convertible Note with a redemption right for 3X your investment to be returned at year 3 of the investment at \u2018Investor Sole Discretion.\u2019\xa0\xa0\xa0 At the third anniversary of signing the note, the investor has the option to convert the original investment to a three times return ($100K in is $300K out) or to go on the cap table as an equity investor. In reality, there are many choices. In most cases, the startup is motivated to keep your funds in the deal and will negotiate terms to achieve it. 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 .