FIGURE 8 (7) Voting Rights: [Investor Favorable, Middle of the Road and Company Favorable are the same.] The Series [A] Preferred will vote together with the Common Stock and not as a separate class except as specifically provided herein or as otherwise required by law. Each share of Series [A] Preferred shall have a number of votes equal to the nu

however valuations that are prematurely high in early rounds can adversely affect the marketability of a company in a later round. Investors who come to the table may sense that the management and its previous investors had lofty and inappropriate expectations and that as a result management may be difficult to work with or to rely on when it comes

The most Investor Favorable clause implements what is called a full ratchet, which means that the effective cost and ownership percentage in the company for the preferred investor who invested at a given price in a prior round adjusts so that the cost and ownership percentage to the old investor is as if that investor invested in the new round side

But it is wiser for entrepreneurs to seek funding which will last them 12 to 18 months in competitive financing environments. This does not mean that financing for this period of time need necessarily be secured in one payment up front.

In the event that a company is struggling to raise that round, existing investors who float a term sheet will do so under terms that are attractive when compared to prior rounds, called a down round, or represent a round at the same price as the prior round, called a flat round.

2. Limitations to the Scope of a Syndicate Another red flag is investors who try to dissuade an entrepreneur from opening a round or increasing it in size in order to accommodate other interested VCs.

One simple rule in any financing for entrepreneurs is this: It is often wise to take funding from interested investors when you are offered it. The fundraising process is distracting and eats up precious time.

Figure 3 highlights the type of clauses that are likely to detail the economic effect that Dividend Provisions can have in increasing the value of preferred stock over time. Dividend provisions are one of the critical tools that allow VCs to protect their investment and to get out of an investment with at least some prospect of a return in the even

FIGURE 3 Rights, Preferences, and Privileges of the Series [A] Preferred. (1) Dividend Provisions: Investor Favorable: The holders of the Series [A] Preferred shall be entitled to receive cumulative dividends in preference to any dividend on the Common Stock at the rate of 15 percent of the Original Purchase Price per annum, when and as declared by