11. Summary

The purpose of this module was to understand the three major elements of financial deal making and to learn how these elements are reflected in the so-called "Term Sheet:"

• The division of returns
• The allocation of control
• Exit considerations.

We have covered the relevant deal terms from different perspectives. On the "bright" side, we have seen that many of these terms can be extremely beneficial to the parties of the deal, because they help us bridge valuation gaps, align incentives, and reveal preferences and expectations. On the "dark" side (from the point of view of the entrepreneur), we have also seen that there are many deal provisions that shift significant power and decision rights to the investors, including liquidation preference, voting and board provisions, redemption rights, and exit rights. 

As in all negotiation situations, the terms of the deal ultimately determine whether a deal is good or bad. It is therefore extremely important that the founders have a profound understanding of the relevant deal terms and their possible implications. As in all legal documents, every single word counts. For example, in the formulation of a drag along provision, the fate of the entrepreneurial firm could be significantly altered depending on whether the provision is triggered by a majority of "Common" Stock or a majority of "Preferred" stock!