Join us for an upcoming webinar hosted by Strafford and led by partner Louis Lehot, "Venture Capital Exit Strategies," on Tuesday, June 29, 1:00pm-2:30pm EDT.
When negotiating and documenting venture capital investments, founders and investors must focus on potential exit strategies and how they might be affected by management provisions, equity incentives, and the company's capital structure. Venture capital documentation must be drafted to avoid unintended consequences in the event of an IPO or acquisition.
The parties should consider existing shareholders' rights and how an exit event will impact them. An IPO or acquisition might trigger a conversion of convertible securities and warrants or anti-dilution provisions. Secondary transactions may trigger ROFRs and other shareholder options that could result in the vesting of stock and negatively affect valuation.
Employee stock awards could also present a stumbling block and should be structured to integrate into the IPO or acquisition transaction. Options with accelerated vesting may lower the sale price in an acquisition, as they require additional capital from the buyer to retain these employees.
Investors typically negotiate for expanded voting rights, while founders will seek to limit these voting rights to events that directly affect an investor's economic rights. Registration rights provisions can result in confusion or conflicts during an IPO or acquisition process and should be drafted with care.
Listen as we discuss venture capital exit strategies and pitfalls of particular concern to investors and founders.
For more information and to register, click here.