Ownership Guillem Laporta, CFA Principal, Ysios Capital Istanbul - - PowerPoint PPT Presentation

How to Structure a Term Sheet and Preserve Ownership

Guillem Laporta, CFA Principal, Ysios Capital

Istanbul October 18, 2019

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Disclaimer

This presentation has been prepared by YSIOS Capital Partners, S.G.E.I.C., S.A.U. (“YSIOS). This presentation is only provided for information purposes. This presentation does not constitute a public offer or marketing in accordance with the Spanish legislation in force, neither is part of the legal documentation of the Fund. This presentation does not constitute investment advice, so the recipient of this presentation should form their own assessment and take consequences and risks of doing so in the light

• f his/her or its personal circumstances. Neither YSIOS nor any third party or entity will

accept any liability regarding the accuracy of the information contained in this presentation. The information and/or opinions are subject to change without notice.

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Decision Process

03 Deal Flow

• 6. Confirmatory Due Diligence
• IP

, FTO

• Corporate, legal, labor, tax,

and financial statements

• Science, clinical, CMC, and

commercial aspects

• 2. Screening
• Sector/industry focus
• Fit within portfolio strategy
• Stage of development
• Risk/return potential
• Round size
• 1. Deal Sourcing

Proprietary Network Conferences Unsolicited Core & Expanded Teams

• 3. Initial Due Diligence (DD)
• Biological rationale
• Preclinical/clinical data
• Development program
• Management team

Investment Sub-Team

• Market potential
• Cash needs
• Exit strategy
• Meeting with the company
• Interaction with KOLs

Fact Sheet

• 5. Investment Committee

Discussion of the Investment Memo, which includes the Initial DD and investment thesis

Term Sheet

• 4. Deal Flow Meetings

Fact Sheets are discussed as initial DD continues Ysios Team Members of the IC

Invest ment Memo

• 7. Investment Committee

Discussion of the Update Note, which contains the findings of the confirmatory DD

Update Note Legal docs

• 8. Investment Closing

Syndication Syndication

Members of the IC Investment Sub-Team

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Term Sheet

Term Sheets Are Initial Documents Containing the Main Terms of an Investment

• Outline deal conditions in 10-20 pages
• Signed by investor/s and company
• Basis for negotiation
• Anticipate closing date
• Conditions to closing
• Non-binding (except for confidentiality and

exclusivity)

• Basis for legal investment agreements

TERM SHEET

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Term Sheet

Most Conditions Relate to Financial and Governance

FINANCIAL CONDITIONS GOVERNANCE CONDITIONS

• Valuation
• Liquidation preference
• Tranching
• Ratchet
• ESOP
• Pay-to-Play
• Qualified majorities
• Board Composition
• Lead investor
• Board/Shareholders’

matters

• Right of 1st refusal
• Drag along
• Tag along

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Term Sheet

Not All Conditions Are Negotiable by Investors

FINANCIAL CONDITIONS GOVERNANCE CONDITIONS

• Valuation
• Liquidation preference
• Tranching
• Ratchet
• ESOP
• Pay-to-Play
• Qualified majorities
• Board Composition
• Lead investor
• Board/Shareholders’

matters

• Right of 1st refusal
• Drag along
• Tag along

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Term Sheet

Ways to Mitigate Financial Dilution

• Valuation

– Increase (valid reasons: stage, risk, comparables, last post-money) – Step-ups between tranches

• Liquidation preference

– Decrease (valid reasons: not market standard, founders not incentivized) – Put a cap based on investor’s multiple – Single dip vs. double dip

• ESOP

– Increase (key personnel needed) – Negotiate vesting and cliff – Refresh

• Ratchet

– Weighted ratchet vs. full ratchet

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Term Sheet

Ways to Mitigate Lose of Control

• Board Composition

– Secure founder representation – Observers – Get to choose independent board members

• Board/Shareholder’s matters

– Expenses amount – Class voting

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Term Sheet

Competition Is Key