FIP 72: Funding 4/4 – Breaking Down Term Sheet Terms with Nine Gené of Jasmine Social Investments

Our final episode in our 2018 fundraising series features Nina Gené of Jasmine Social Investments. The goal of this episode is to provide entrepreneurs with insights to better prepare them for negotiations with potential funders or investors. Nina joined Jasmine in 2007 with the responsibility to identify prospective investments, support partner organisations and collaborate with a network of social investors. Jasmin Social Investments funds high-performing social ventures and outstanding social entrepreneurs who are solving a basic need of the very poor.

My key takeaways from this interview were:

* Nina believes that Jasmine, who also invest in tech startups in New Zealand, are better venture capitalists because they are philanthropists. Learnings from the social side include how to do comprehensive due diligence, how to listen to other investors and leverage others’ due diligence, and how to give advice as generalists to organisations in their portfolio.

* On their granting side, Jasmine takes one single measure of success and they ensure they know in detail the underlying economics of it. This type of thinking in the early days should help entrepreneurs decide whether to scale through equity or grants. And this is a big learning because entrepreneurs sometimes instead of deciding, they end up guided by investors and the lure of getting funded so they grow quicker. Therefore entrepreneurs need the confidence to only go after the funding they really want.

* Entrepreneurs shouldn’t get caught up on getting the highest valuation they can get, because a deal is about alot more than the price. It’s about the opportunity to work with great people who are also very aligned to your mission. And if you delay, you risk running out of money, which is a poor negotiation position.

* Seed rounds are normally done on a convertible basis these days, instead of straight equity, so you’re delaying the valuation discussion. Whether an investor requires a valuation or not is a personal thing. But if you choose not to do a valuation, you might need to informally put a price on the valuation, so you protect your seed round investors from the demands of the investors in the next round.

* Another critical question to figure out is about raising the right amount of capital and getting the timing right. Entrepreneurs try to raise the minimum amount now so they can raise a larger amount later at a higher price. But then the entrepreneur could end up in permanent fundraising mode instead of making some key hires and iterating the model. Better to take the money now and set yourself up for a longer time.

* Make sure you keep terms simple, because the next investor will lay the rights on top of yours, and you could wind up getting too complicated. Always ask yourself: “Am I doing something in this round that will prevent someone fantastic to come in on the next round?”

* Smart clauses to include are anti-dilution rights, which ensures existing investors are always protected by a future down round. And giving them pro-rata rights, so you allow current investors to participate in future rounds so they can maintain their percentage ownership.

* On allowing Board seats, small and effective Boards (five seats) are essential so giving investors a seat on the advisory Board might be better, otherwise you end up with a massive board which is unproductive.

And access rights might be avoided because you might not want to share the full stack of your accounts for every investor always, but on the other hand, one email every six months should be the minimum for all investors.

* Other than your own learning (see resources below), entrepreneurs should talk with their peers, talk about terms and their views.

Links to resources mentioned in this interview:

* Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Br...