Tougher term sheets from international investors are pitting founders against their existing investors, whose stakes could become worthless.
Term sheets show harsher requirements and restrictionsUS investors are demanding up to four times their money back in return for funding Australian start-ups, pitting founders who need the cash against their existing backers whose stakes will be effectively devalued.
A term sheet drawn up by Arrowroot Capital, a US-based venture firm that has Australian investments, showed the American investor demanding a liquidation preference as much as four times earlier this year.A liquidation preference means that if the start-up is sold, the investors will get that many times the cash they invested back.
American venture firms often include “side letters”, which introduce rights for the investor to receive financial and board information as well as anti-dilution clauses and restrictions on founders selling their vested shares.
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