Buffer series a term sheet investment

Buffer Series-A term sheet and term review

Buffer, known for their ‘transparency’, released their Series-A term sheet. I thought it would be useful to share this so founders can see what a term sheet looks like and out of curiosity as to the terms Buffer got.

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The Deal

Buffer raised $3.5m series-A round from 2 investors in October 2015. The investors were Marc Bell Ventures and Stage One Capital. The post-money valuation waspitch deck $60m. The ESOP pool was 12.5% post.

Interestingly the round was largely to take money off table for founders and a few staff, meaning a small cash out. Of the $3.5m, the fouders took $2.5m themselves, leaving $1m to grow the company.

The terms

  • Stock type: preferred
  • Dividends: The investors got a 9% cumulative dividend which is payable at liquidation (sale) or redemption (stock buyback). This is not a great term. It’s used by investors to juice their returns.
  • Liquidation preference: 1x plus dividends (above). This is very standard (other than the 9% dividend interest rate).
  • Protective provisions: Require 60% of the preferred to vote on a number of points such as not to issue more shares. This is pretty normal. The issuance of debt (indebtedness) is capped at $500k which is normal too.
  • Anti-dilution: There is a broad-based weighted average ratchet. This means if there is a ‘down round’ the investors don’t get wiped out. It’s not a great term but the broadbased weighted is a fair one.
  • Mandatory conversion: Buffer basically can’t IPO unless it is worth at least $40m. Since the investment was at a $60m valuation that is fair!
  • Redemption rights: Investors can force Buffer to buy back their shares in 5 years time. The value of which is their investment plus the 9% cumulative dividend. Once investors ask for this they get paid a third each year over 3 years.
  • Counsel and expenses: Buffer were told to have their lawyers draft the legal docs and that they should be based on the NVAC tempates (US VC association). Buffer had to pay for the investors legal fees up to $25k. This is a little more normal at later stages (not so much seed).
  • Information rights: Any investor that invests more than $250k gets to have 1/ visitation rights to the office with proper advance notice, 2/ yearly and quarterly financial statements and 3/ business plan (operating budget) for the next year at the end of every year.
  • Pro-rata: Normal pro-rata for Major investors ($250k investment). Also is major investors don’t take up the right, the other Major’s get to buy them
  • Right of first refusal and tag along: If more than 1% of shares¬†are to be sold, the founders then then investors get the right to buy the shares. If people don’t take their pro-rata than other investors can buy them. This is pretty normal.
  • Board: There is no director, but they can have an observer. This isn’t that normal.
  • Other: Everything else is pretty standard

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