Archives For Term Sheets

Cooley LLP recently released a report on venture financings for 2012. The report provides a summary of data reflecting our experience in venture capital financing terms and trends. Information is taken from transactions in which Cooley served as counsel to either the issuing company or the investors.

Overall, our data pointed to a year marked by slowing deal volumes and stabilizing valuations. In 2012, we saw aggregate dollars raised reach $4.9 billion, down from $6 billion in 2011. The decrease in both deal volumes and invested capital was driven by a slowing financing environment during the second half of 2012. Median pre-money valuations were relatively flat across all deal stages with the exception of Series B transactions. We saw an increase in up versus flat/down rounds. Up rounds represented 75% of all financings in 2012, a level not seen since 2007. Additionally, the percentage of recapitalization transactions fell in 2012, as well as the number of tranched deals. Deal terms also mirrored the financing statistics. The utilization of fully participating preferred provisions was relatively flat from 2011 and we witnessed a decrease in pay-to-play provisions in 2012, compared to the prior year.

The full report can be downloaded here.

Cooley LLP recently released its 3rd Quarter 2012 venture financing report.  The report analyzes Cooley’s venture capital transactions nationwide that closed during this period, representing 81 deals and over $960 million in invested capital.

Highlights of the report include:

  • Overall, the data pointed to a quarter marked by slowing deal volumes and decreased invested capital during the quarter.
  • In Q3 2012, we saw median pre-money valuations decline in Series A and B transactions. Additionally, the data showed a decrease in up versus flat/down rounds from the prior quarter.
  • Up rounds represented 71% of all financings in Q3, down from 77% in Q2.
  • The percentage of tranched transactions increased in Q3 to over 20% of all deals, though the percentage of recapitalization transactions decreased.
  • Deal terms in Q3 2012 remained mixed. We observed increases in the use of fully participating preferred and pay-to-play provisions in Q3, compared to the prior quarter. The data pointed to increased utilization of greater than 1x liquidation preferences in Series A and C deals, while showing a decrease in Series B and D+ transactions. Additionally, we saw a decrease in the use of drag-along provisions during the quarter.
Note that the report includes data from our recently opened Los Angeles (Santa Monica) office.

The full report can be downloaded here.


Recently Yokum Taku of WSGR announced, together with and Founder Institute, a new set of standard forms for an investment security called “Convertible Equity.”  The open sourced standard form documents can be found here:  term sheet, purchase agreement and convertible security. The release received a fair amount of attention in Techcrunch, among other publications, and in my Twitter feed.

First, kudos to Yokum, TheFunded and Founder Institute for attempting to further the causes of document standardization, lowering friction in fundraising and achieving greater balance between the forms of investment known as convertible debt and equity.  This is something that all of us in the startup ecosystem strive for, even, ahem, the lawyers.

Since then, many of us in the startup community have been asked by clients and others about this form of investment structure, and I thought I would make my thoughts known publicly.

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