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Anatomy of a Term Sheet – Conversion

Financing, Term Sheets // 22 September 2009

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Preferred Shares are typically convertible into Ordinary Shares. It would be very difficult for an investment bank to market an IPO of Ordinary Shares if there were still Preferred Shares in issue. The main purpose of making the Preferred Shares convertible is to ensure that the Preferred Shares automatically convert into Ordinary Shares immediately prior [...]

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Anatomy of a Term Sheet – Redemption

Financing, Term Sheets // 17 September 2009

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Redemption is another method through which Investors seek to “exit” from their investment if there has been no other “exit” opportunity within in a set period of time (for example five years). Redemption rights are essentially a put option, giving the Investors the ability to require the company to buy back the Investors’ shares at [...]

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Anatomy of a Term Sheet – Liquidation Preference III

Financing, Term Sheets // 17 September 2009

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A “participating” preference (sometimes referred to as a ‘double-dip’) maximises an Investor’s upside as well as protects its downside in an exit situation. With a “participating” preference, on a sale or winding up of the Company, the Investor would receive (i) their preference amount first together with any accrued but unpaid dividends (exactly the same [...]

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Anatomy of a Term Sheet – Liquidation Preference II

Financing, Term Sheets // 15 September 2009

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There are two basic forms of liquidation preferences: “non-participating” and “participating.” This post will deal with “non-participating” liquidation preferences. “Non-participating” is the most Founder/Shareholder friendly form of liquidation preference. It protects the Investor against lower exits and is fairer for all shareholders at higher exit valuations. In the event of a sale or winding up [...]

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