3 ms·

The only surprising bit for me was the dividends. Most terms sheets I've seen don't require the 6% dividend. Seems weird.

• pedalpete 8y ago
  I was surprised by the % being included as I figured that would be decided by the board at the time a divindend is approved. I have no idea why a % which would be defined before knowing the details of the companies financial situation. I wonder if this is more of a protection against the board deciding on a dividend when it is in the best interest in the near term for the company to keep money in the bank. So defining 6% might mean "this company has so much cash that they can return a 6% dividend without harming the long-term potential". Perhaps if you aren't able to return 6%, you aren't ready to return a dividend at all?
  • Hongwei 8y ago
    Am also confused by this (and hoping this comment would get some love!)
  • hobbyjogger 8y ago
    The dividend provision just says that the common won't get a dividend unless the preferred has already received their 6% (per year). It doesn't mean that you couldn't issue the preferred a smaller dividend--that would just count toward the 6% but still wouldn't allow the common to get a dividend until the remainder is paid out to the preferred. It's relatively rare for venture backed startups to issue ordinary course dividends anyway (for the reason you stated, funding development/growth is typically seen as a better use of company cash to try to get to a big exit or IPO, etc.).
    • jasonkwon 8y ago
      Yes, this.
• zeckalpha 8y ago
  Noncumulative preferreds aren’t required in the same way as cumulative preferreds.