FILL OUT APPENDIX A
Appendix A: Evaluating Ockham's Term Sheets The relative importance of each term for contrasting types of Rich" and "King" entrepreneurs outlined in Figure A is meant as a guide for entrepreneurs during the negotiation process. Entrepreneurs should focus on negotiating better terms for those items that are high priority for their type of motivation. But this framework is also useful for founders as they move into the process of evaluating competing offers and ultimately making a decision about alternative sources of financing. By keeping in mind their motivations for founding a start-up in the first place, entrepreneurs can make a decision that fits with their personal goals and values. This exercise is meant to give you experience evaluating actual term sheets. Exhibits 1 and 2 offer two contrasting term sheets, the first from an angel and the second from a VC, modeled on the actual deals that were offered to Jim Triandiflou for his startup, Ockham Technologies. To evaluate these term sheets, use as a starting point the "importance" values from Figure A (listed again in Figure B below). Then, for the two term sheets, score each of the core terms on a scale of 1 to 10, with 1 being the least desirable state and 10 being the most desirable. Use the table below as a scorecard. Figure B Scoring the Term Sheets Angel Term Sheet VC Term Sheet Desirability of Rich King Desirability of Rich King Term Importance Importance Term Importance Importance Valuation 10 3 10 3 Option Pool 10 3 10 3 Lian. Preis 7 0 7 0 5 3 5 3 Anti-Dilution Protection Dividend Rts. 5 0 5 0 Bd. Compos'n 0 10 0 10 0 8 0 8 Protective Provisions Drag-Along Rights 1 00 8 1 8 Term sheet that should be preferred by King-motivated entrepreneur: Term sheet that should be preferred by Rich-motivated entrepreneur: . . Term sheet I would prefer: Appendix A: Evaluating Ockham's Term Sheets The relative importance of each term for contrasting types of Rich" and "King" entrepreneurs outlined in Figure A is meant as a guide for entrepreneurs during the negotiation process. Entrepreneurs should focus on negotiating better terms for those items that are high priority for their type of motivation. But this framework is also useful for founders as they move into the process of evaluating competing offers and ultimately making a decision about alternative sources of financing. By keeping in mind their motivations for founding a start-up in the first place, entrepreneurs can make a decision that fits with their personal goals and values. This exercise is meant to give you experience evaluating actual term sheets. Exhibits 1 and 2 offer two contrasting term sheets, the first from an angel and the second from a VC, modeled on the actual deals that were offered to Jim Triandiflou for his startup, Ockham Technologies. To evaluate these term sheets, use as a starting point the "importance" values from Figure A (listed again in Figure B below). Then, for the two term sheets, score each of the core terms on a scale of 1 to 10, with 1 being the least desirable state and 10 being the most desirable. Use the table below as a scorecard. Figure B Scoring the Term Sheets Angel Term Sheet VC Term Sheet Desirability of Rich King Desirability of Rich King Term Importance Importance Term Importance Importance Valuation 10 3 10 3 Option Pool 10 3 10 3 Lian. Preis 7 0 7 0 5 3 5 3 Anti-Dilution Protection Dividend Rts. 5 0 5 0 Bd. Compos'n 0 10 0 10 0 8 0 8 Protective Provisions Drag-Along Rights 1 00 8 1 8 Term sheet that should be preferred by King-motivated entrepreneur: Term sheet that should be preferred by Rich-motivated entrepreneur: . . Term sheet I would prefer
