1. Fundraising: Angel, Bridge, and VC Financing
University of California, San Diego
Entrepreneurship Series
April 2019

2. Business Model
Providing experienced representation tailored to clients’ unique needs at every stage of growth
Corporate Governance
Antitrust
Mergers & Acquisitions
Securities and Governance Litigation
Shareholder Activism
Multibillion-Dollar
Global/Mature
Public Company
Government Investigations
Energy and Infrastructure
Board and Internal Investigations
Tax and Tax Equity
White Collar Litigation
Finance and Structured Finance
Appellate Litigation
Capital Markets
IPO/Early Public
Company
Patent and Intellectual Property Litigation
Private Equity
Class Action, Consumer, Commercial Litigation and Trial
Technology Transactions
Regulatory Compliance (FTC, FDA, FCPA, Exports, CFIUS)
Patents and Innovations
Investment Adviser and Broker-Dealer
Trademarks and Copyrights
Entrepreneur/
Start-up/
Venture Capital
Privacy and Data Protection
Real Estate
Internet Law and Strategy
Employee Benefits and Compensation
Trade Secret Litigation
Investment Fund Services
Employment Litigation
Start-ups and Venture Capital
Pro Bono

3. Who We Are & What We Do Our track record:
Represent more companies that receive venture financing than any other law firm
Advise more U.S. companies on their initial public offerings than any other law firm
Represent more technology companies in mergers and acquisitions than any other U.S. law firm
Advise more than 300 public and 3,000 private enterprises on issues of corporate law, securities, and corporate governance

4. Entrepreneurs, Private Companies, and Venture Capital
WSGR represents more companies that receive venture financing than any other U.S. law firm*
Actively represent more than 3,000 private companies
Deep relationships in the venture capital community
Represent more companies that receive venture financing than any other U.S. law firm
Consistently ranked No. 1 for the most venture capital deals by VentureSource
Incorporate thousands of successful businesses (Autodesk, Coherent, Cypress Semiconductor, Google, Linear Technology, Sun Microsystems, etc.)
Provide value-added resources
Entrepreneurs College
Entrepreneurs Report
Online Term Sheet Generator
*Source: Dow Jones VentureSource. Market share based on firms with 14 or more issuer-side financings in 2018.

5. Entrepreneur & Private Company Practice
WSGR represents more companies that receive venture financing than any other U.S. law firm*
Founded in 1961 with over 650 attorneys located across the globe
Actively represent more than 3,000 private companies
Deep relationships in the venture capital community
Incorporate thousands of successful businesses (e.g., Autodesk, Coherent, Cypress Semiconductor, Google, Linear Technology, and Sun Microsystems)
Provide value-added resources:
Entrepreneurs College
Entrepreneur’s Report
Online Term Sheet Generator
WSGR
*Source: Dow Jones VentureSource based on venture equity financings in 2014

6. Wilson Sonsini Goodrich & Rosati
Since
1961 16
Offices Worldwide
750
Attorneys
3,000+
Private Clients
300+
Public Clients

7. On the Forefront of Groundbreaking Industries
WSGR represents more than 300 public and 3,000 private companies, including:
Information Technology
Life Sciences
Energy & Clean Technology
Represent thousands of information technology clients
Unparalleled experience in IT sectors, including:
Communications & networking
Electronics & computer hardware
Internet
Information service providers
Media & entertainment
Nanotechnology
Semiconductors
Software
Represent more than 500 biopharmaceutical and medical device clients
Our dedicated life sciences practices include:
Corporate securities
Mergers & acquisitions
Patent counseling and prosecution
Partnering transactions
Global generics
Drug & device regulatory
Intellectual property litigation
Pharmaceutical antitrust
Represent more than 300 energy and clean technology clients
Practice is built on the firm's expertise and leadership in the fields of:
Venture capital finance
Project finance and development
Intellectual property
Mergers & acquisitions
Environmental law
Climate change
Strategic carbon counseling
Government initiatives
Representative Clients
Representative Clients
Representative Clients

8. Connecting Startups With Investors
WSGR represents and works alongside the leading venture capital firms, including:

9. Why Are We Here?
Southern California continually ranks in the Top 5 Largest Venture Capital metros in the U.S.
Many factors have led to growth spike in investment interest & investor communities
Talent pool from surrounding universities
Technology infrastructure services make building companies cheaper
Strong exit activity

10. Types of Early Stage Investment
Key Elements
of a Financing
Size – how much money should be raised
Source – where is the money coming from
Type of Security
Valuation required – does the investment require a valuation of the company?
Debt based/interest – does the investment mean a growing debt load?
Impact on control rights
Liquidation preferences

11. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Highly dependent on facts and circumstances
Varies in size though usually less than $50,000
Type – common stock, promissory notes (convertible or non-convertible), contributions to capital
A valuation may be required
Equity or debt
Usually no impact on control rights
Typically no liquidation preference
Potential downsides
Risks to personal relationships
Investors usually have no experience to bring to the table
These investments are usually not sources of a large amount of money
Familiarity with investors can lead entrepreneurs into the trap of inadequate documentation

12. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
A promissory note for the full investment amount with an interest rate and a maturity date
Typical maturity date is one to two years from closing
Automatic conversion on a “qualified financing”
Optional conversion on other financings
Discount and/or warrants on conversion
Premium on a change of control
Valuation caps for conversion
The larger the convertible debt financing, the less likely it is to be combined with the new money in a preferred stock financing

13. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
SAFE: Simple Agreement for Future Equity
It strips the debt like attributes from the convertible note
Drafted to be layperson friendly as accessibility is prioritized over comprehensiveness – only 6 pages long
It has the backing of Y Combinator and its partners
Size – varies
Source – angel investors; accelerators
Valuation – no
Debt based – no
Control rights given up – typically no
Liquidation preference – yes

14. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Size – $50,000 to $1M
Source – a single investor or a group of affiliated investors
Type – common stock, convertible debt, promissory notes
Valuation – depends on if debt or equity based
Control rights – depends on the size of the round, may include a board seat, protective provisions and participation rights
Liquidation preferences – yes if preferred stock

15. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Simplified series A financing documents
Designed to save time and money relative to traditional equity based financing documents, they omit specific provisions in an effort to simplify
What they’re missing relative to traditional series A documents
Dividend preference
Registration rights
Anti-dilution protection and other protective provisions
Voting agreements
Comprehensive representations and warranties

16. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Size – roughly $1M to $5M, typically not larger because of investors’ desire for protective provisions
Source – Angels, Friends and Family
Type – preferred stock
Valuation required – yes
Debt based/interest concerns – no
Control rights given up – often include a board seat, participation rights and protective provisions
Liquidation preference – yes 1x non-participating typical

17. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Choosing the right VC Partner
What network does the specific partner you are working with bring to bear?
What past experience does that partner have that might be helpful if on your board?
Speak to members of that partners current and past portfolio
How involved will the VC Partner want to be in your company?

18. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Key Parts of a Series A Term Sheet:
Valuation
Pre and Post Money Valuations
Option Pool
Dividends – Non-Cumulative
Liquidation Preference
Initial Preference
Participating or non-participating
Participation caps
Non-cumulative
Antidilution
Board Composition
CEO seat
Founder Vesting
Drag Along
Protective Provisions

19. Types of Early Stage Financings
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights
Valuation Jargon
“3 on 3” means $3M pre-money with $3M round
With a $6M post-money ($3+$3)
VCs will own 50% of the company
Let’s assume the required option pool is 15%
This is what the cap table will look like:
Investors 50%
Founders 35%
Option Pool 15%

20. Liquidation Preference
Investors get a “Liquidation Preference” in the event of a liquidity event of the company
“Liquidity events” include M&A transactions
A typical liquidation preference would provide the investors their money back before any other stockholders receive any proceeds
A “participating” liquidation preference entitles investors to their money back, plus the right to participate in the remaining amounts
Caps are often negotiated
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights

21. Liquidation Preference
Example of Fully and Non Participating Preferred Stock (assumes $30m sale price and $6m invested)
Shares
% o/s
Liquidation preference
Payment of remainder
Full Participation
Total proceeds
No Participation
Total Proceeds
Seed
1,000,000
13.33%
$1,000,000
$3,200,000
$4,200,000
$4,000,000 A
1,875,000
25.00%
$5,000,000
$6,000,000
$11,000,000
$7,500,000
Common (founders)
3,500,000
46.66%
N/A
$11,200,000
$14,000,000
Option pool
1,125,000
15.00%
$3,600,000
$4,500,000
Total
7,500,000
100.00%
$24,000,000
$30,000,000

22. Antidilution Protection
Conversion rate adjusts on certain events
Proportionate in the event of stock splits
Price based antidilution upon a “down round” financing
Weighted average protection: Conversion price is adjusted based on a formula that considers the number of new shares being issued compared to the shares outstanding and the price at which the new shares are issued
Full ratchet protection: Conversion price is adjusted so that the price per share is reset to the price per share in the new financing, regardless of the number of shares issued and the price at which they are issued.
Provide for appropriate carveouts to antidilution protection (i.e., for option issuances, strategic warrants, etc.)
Recent trends include antidilution adjustments for specific liabilities identified in diligence, near term option plan increases, low pricing IPOs.
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights

23. Board Composition/Voting Rights
Companies are controlled by the board of directors
Control over the board means control over the company
Typical board composition post Series A investment is two founders representatives, two investor representatives, and one mutually selected industry expert.
Even if board approves, “protective provisions” require preferred holders to approve certain events, including:
Change of control transactions
Amendments to charter/bylaws
Issuing senior or equal priority securities
Increasing size of the option pool
Incurring debt
Changing board size/composition
Friends and Family
Convertible Debt
SAFE
Angels
Seed Rounds
Series A Venture Round
Liquidation Preference
Antidilution Protection
Board Composition/Voting Rights

25. The Entrepreneurs Report

26. Valuation Trends for 2018
Source: WSGR

27. Valuation Trends for 2018
Source: WSGR

28. Valuation Trends for 2018
Source: WSGR

29. Valuation Trends for 2018
Source: WSGR

30. Valuation Trends for 2018
Source: WSGR

31. Thank You!
Contact info:
Ben Capps
@WilsonSonsini