Is My Term Sheet “Market Standard”?
Is my term sheet ‘market’? New report by Mountside Ventures analyses the standard terms of 200+ VCs
LONDON–(BUSINESS WIRE)–Fundraising adviser, Mountside Ventures, have released their inaugural Term Sheet guide, “Demystifying Venture Capital Term Sheets.” The report provides insights from 203 global investors, with over £11 billion in assets under management, investing in over 1,000 deals p.a., on the typical terms they offer founders. The report is published in partnership with Landscape VC and Beauhurst.
“Term Sheets are a crucial tool for founders, dictating the terms on which an investment will be structured. Whilst founders can lean on their advisers (like us!) to assist with this, having an upfront understanding of the market, different types of investors and why this impacts terms, provides an invaluable advantage as you start your fundraising journey,” says Jonathan Hollis, Managing Partner of Mountside Ventures.
The objective of the report is to increase transparency in the early-stage fundraising ecosystem, as well as to provide benchmarks for investors on how competitive their terms are. Highlights include:
Share preferences: 80% of investors expect preference shares rather than ordinary shares, with the most common being a 1x non-participating liquidation preference.
Valuation: Between 2011 and 2021, the average pre-money valuation in the UK has more than tripled; rising from £6m in 2011 to £29m in 2021.
Fees: Most investors charge fees to their portfolio to cover their operational costs (19% charge no fees). Across all investors, the majority (c. 70%) recharge deal fees to investee companies. The most common fee structure for VCs is 1%-2% of fund size. EIS and VCT investors are more likely to charge management fees to their portfolio; the most common fee structure being between 5%-7% of cheque size.
Board: The majority of investors (c. 80%) expect a board seat, especially when leading the round.
Founder vesting: Significant variance across the investor landscape on what is “market” for founder vesting. However, the survey was clear that almost all investors (98% of those surveyed) require reverse vesting over a percentage of founder shares; the most common being monthly vesting over 4 years, with a 12 month cliff.
Share options: the majority of investors ask founders to create or top-up their option pool. “Market standard” is 5-10% of the total equity (requested by 57%), although many funds require 10-15% (requested by 32%).
Exclusivity period: 35% of investors expect a 4 week exclusivity period, operating as a binding term in the term sheet.
Transaction timeline: the majority of funds (c. 50%) take 8-12 weeks to perform diligence and agree equity documents.
Click here for the full report.
About Mountside Ventures
Mountside Ventures is an award-winning advisory firm, specialising in early-stage fundraising and exits, on a mission to optimise the fundraising process for founders and funds.
Contacts
For enquiries: Jonathan Hollis, [email protected], +44 (0) 75 1740 8366
