Can Your Lawyer Handle Venture Capital Financing?
To complete a venture capital financing deal, you need a lawyer who knows the ins and outs of venture capital financing. This is no time for an inexperienced lawyer to learn something new! An experienced attorney knows what terms are standard and what terms the venture capitalist is willing to negotiate.
To find out if your attorney has what it takes, start by asking him or her what the following terms mean:
- Weighted average anti-dilution formula: A formula that venture capitalists often insist upon to protect their investment from dilution.
- Convertible preferred stock: The kind of stock that venture capitalists typically expect to get in your company, it gives them certain preferences over other stock.
- Registration rights: Venture capitalists expect to be given rights that allow them to sell their shares in a public offering.
- Preemptive rights: The venture capitalist's rights to maintain his stock percentage ownership in the company by participating in future stock sales.
- Board seat rights: The venture capitalist's right to appoint his designee or designees as members of the company's board of directors.
- Co-sale rights: The venture capitalist's right to participate in sales of stock owned by the company's founders.
A passing grade is 6 out of 6. If your lawyer doesn't know all the right answers, find someone else with more experience.
