Founders, heads up: you may come across some challenging deal terms in this new venture capital climate.
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We aggregated three key deal clauses across the thousands of rounds completed on Carta each quarter (Seed through Series F). It turns out that all three provisions have been turning more “investor-friendly” over the past 6 months, but the degree of change varies widely.
𝗖𝘂𝗺𝘂𝗹𝗮𝘁𝗶𝘃𝗲 𝗱𝗶𝘃𝗶𝗱𝗲𝗻𝗱𝘀 Our first non-standard term. These dividends function like interest that accrues on debt. Cumulative just means that these are earned over time, whether or not its declared by the board.
1 in 10 deals on Carta had cumulative dividends in Q4 2022. That’s the highest such percentage in the last five years.
𝗟𝗶𝗾𝘂𝗶𝗱𝗮𝘁𝗶𝗼𝗻 𝗺𝘂𝗹𝘁𝗶𝗽𝗹𝗶𝗲𝗿 How much of a VC’s investment are they guaranteed to get back before everyone else gets paid out in the event of an exit?
Again, this clause is becoming more common. Still under 7% of deals, but rising fast.
𝗣𝗮𝗿𝘁𝗶𝗰𝗶𝗽𝗮𝘁𝗶𝗼𝗻 The most onerous of deal clauses. Essentially this is the ability to get paid out first AND share in remaining profits with other shareholders (the infamous double-dip).
The percentage of deals with participation has stopped falling but has yet to rise back towards 2019 levels. That’s a silver lining, but one to watch moving forward.
Dust off those negotiation skills!
#cartadata #dealterms #termsheets #fundraising #venturecapital #startups #founders
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