You have been hired by Serge Brink and Larry Park to assist them in the evaluation of a recently issued term sheet from Global VC Partners.
The new venture is an Internet startup based on the pair's doctoral research and each of the entrepreneurs are newly minted PhD graduates with minimal business experience. At this point, the valuation is not subject to debate but Serge & Larry are concerned about a number of the clauses referred to within the term sheet, specifically:
- Investor demand registration rights
- Reserved ESOP shares (30% of post-money shares)
- Investor liquidation preference of 250%
- Convertible preferred shares with full ratchet provision
- Fixed maturity date with investor put provision
Prepare a comprehensive professional style memo addressed to Serge & Larry that sufficiently explains each of the aforementioned items from both an investor's and an entrepreneur's perspective. You should also recommend any additional clauses that the entrepreneurs may wish to consider within their deal structure negotiations.