Berlin’s first live term sheet battle – Look Mommy! versus XAnge’s Bernhard Schmid

Nina Fowler 2012-05-24 3

Berlin startup Look Mommy! last night faced investor Bernhard Schmid (Partner, XAnge Private Equity) in Berlin’s first ever live “term sheet battle” – designed to help startups get a good deal in funding rounds. Berlin Startup Academy’s new communications associate Charlotte Bilzer gives us a rundown:

Last night, resisting temptation to spend the hot and humid Berlin evening by the river Spree with a chilled one, over a hundred people gathered at Homebase on Potsdamer Platz to witness Berlin’s first “Term Sheet Battle”.

Term sheet battle on!

Chess, with contracts

On stage, it looked a bit like a chess game – with players poking over contracts and VC deals instead of a chequered board. Magdalena Böttger and Sven Morawek, co-founders of Berlin startup Look Mommy!, who are looking for seed funding at the moment, faced Bernhard Schmid, an investor with more than 150 negotiations and 15 exits under his belt.

The two sides went through a term sheet created for the evening paragraph by paragraph, trying to negotiate the best (fictional) deal. Brad Furber, an experienced securities lawyer and investor flown in from Copenhagen, stepped in every couple of minutes to call a time out and explain terms and how founders can try to tweak certain points to their favor.

It was a night for those contemplating building a company – and feeling they should know more about terms like “reverse vesting” (1.) or “single versus double acceleration triggers” (2.) before they might actually run into them.

The show, hosted by new Berlin incubator/accelerator programmes Startupbootcamp and Berlin Startup Academy, also demonstrated how hands-on mentoring and transparency helps founders prepare for crucial moments in their career.

After the pitch, the hard work starts

Startupbootcamp founder Alex Farcet previously ran two similar events in Copenhagen. “Getting your company financed is not always about the glamorous pitch – very often, it’s about sitting down and understanding documents and wordings that may not look sexy, but could determine the future of your business”, he said.

During breaks, attendees lunged for cold beers from the bar – but continued to discuss how their own startups or ideas would fare in such a negotiation, where they would have tried to get a better deal, and how actors on stage were doing. Some had actually read the documents in question, which were mailed to attendees a few days prior.

Afterwards it was back to puzzling out company control terms, a desirable composition for the board of directors, and trying to understand paragraphs to the tune of “eight per cent non-cumulative dividends will be paid on the Series A Preferred when and if declared by the Board; pro rata participation in any Common Stock dividends”.

Never rush your close

Berlin Startup Academy founder Christoph Räthke wrapped up the evening by pointing out that many VCs – especially seed investors – understand the need for a fair contract, even if just to keep founders motivated. But founders need to know deal making standards and terms thoroughly enough to appreciate a good deal when they see one – and be able to reasonably tweak them to their specific team or business structure.

“Venture funding is a people’s business,” he said. “If there is a good relationship with an investor, negotiations normally won’t go awry. Problems arise mainly if one or both sides are under so much stress from dire lack of funds or deal closing pressure that they’re forced to agree to a compromise that they rather shouldn’t.”

Thanks to Charlotte for the post! Here’s a bit of jargon busting to close:

1. Reverse vesting: Founders agree to set aside their shares and earn them back over time (typically four years). Basically, VCs want to make sure you stick around. Watch out if there’s no good leaver/bad leaver clause.

2. Single versus double acceleration triggers: If you manage to sell faster than you expected, what happens to your yet-to-be vested shares? Single trigger means 25 to 100 per cent will be vested immediately. Double trigger means that will only happen if you’re fired without cause or resign for good reason (for example, the new CEO wants you to move to Afghanistan). Negotiating this gives you leverage in a sale.

For related reading, check out:

Startupbootcamp Berlin – get your wildcard

Efamous founder Marcel Hollerbach’s five startup mistakes to avoid

Fred Wilson anticipates good times for entrepreneurs, bad times for VCs

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