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Anatomy of a Term Sheet - Dividends

VCs are not generally in the business of receiving dividends. Venture capital funds generally set up to provide capital gains (i.e. a trade sale or an IPO) rather than for income for their investors.

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Anatomy of a Term Sheet - Pre-emption

Pre-emption rights give Investors the right to acquire new shares issued by the Company to the extent necessary to maintain their percentage ownership in the Company. This is an important protection for investors as it allows them to protect their percentage ownership (albeit they have to pay).

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Anatomy of a Term Sheet - Protective Provisions

Generally speaking, venture capital investors do not take controlling interests in companies (see Anatomy of a Term Sheet - Voting) - either at the board level or the shareholder level. Therefore in order to protect their investment, it would be normal for them to demand certain veto rights over certain company activities.

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Anatomy of a Term Sheet - Voting

It is rare for a venture capital investor to take a controlling stake in a company (the typical range is between 10-25%), which means that at the shareholder level an investor cannot positively control the company (we will discuss negative controls and board composition in another post ).

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