🎙️ Unlocking the Deal: Navigating Startup Accelerator Term Sheets 📈
Ever wondered what really goes down when a startup joins an accelerator? In this episode, we dive deep into the often-complex world of accelerator term sheets! 📜
Join us as we explore why accelerators typically make a seed investment of $10,000 to $250,000, sometimes up to $2.5 million, in exchange for 3 to 10% equity in cohort companies. We'll uncover the crucial clauses that can make or break your company's future, as the term sheet outlines the basic terms and conditions pertaining to the equity being given up.
We'll discuss the nuances between preferred and common stock, noting that preferred stockholders often have a priority payout in the event of liquidation. Learn about the implications of anti-dilution clauses, which can prevent an accelerator's equity from being diluted, a term that other investors might find unfair. The episode also sheds light on liquidation preferences and how accelerators may want voting rights to influence key decisions.
Drawing on real-world founder reflections, including the journey of LEAPIN Digital Keys through multiple accelerators, we highlight the challenges founders face, such as lacking funds for independent legal advice and relying on accelerator-provided lawyer mentors. You'll hear how "options clauses" can introduce uncertainty for future investors, depending on when the accelerator decides to exercise its option to take equity and at what valuation. We also touch upon the strategic decision of registering a new company in a foreign country and holding intellectual property (IP) in a separate "holding company".
Discover why renegotiating accelerator agreements can be a slow and difficult process even after the program ends. Plus, get invaluable advice on why due diligence on accelerators is as critical as investor due diligence on startups, and why trusting a reputable, founder-friendly accelerator with a proven track record is paramount. 🤝
Tune in to avoid common pitfalls and strategically plan your accelerator journey to ensure your startup’s long-term success! 🚀
