From spin-outs to fundraising to mergers and acquisitions, founders need transparent deal terms – TechCrunch
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With top-down rounds looming, startup founders have far less negotiating leverage than they had in 2021. If they’re new to the fundraising game, market shifts will require a accelerated class on less favorable terms sheet provisions like liquidation preferences. The information may have been forgotten in the last cycle, but at least it is available, which is less the case for university spinouts and M&As. Let’s dive into it. — Anne
Investor protections are back
When it comes to fundraising for startups, there’s a lot more open discussion these days about the terms of the deal than there were 10 years ago. But with founders only getting a few hits in their lifetime, compared to the multiple deals VCs and attorneys can see, it’s more important than ever for entrepreneurs to understand what they’re signing.
“The terms of the deal look different in a downturn,” my colleague Rebecca Szkutak wrote. The lawyers she spoke to predicted that certain clauses intended to protect investors would make a comeback — which also echoes what we hear through the vine. Among the provisions to look out for are liquidation preferences, pay-to-play, and anti-dilution protections, including the dreaded full ratchet.