that are used in FStage documents
- 1x non-participating liquidation preference
Liquidation preference is a clause in our contracts that dictates the order of payout in case of a corporate liquidation. In our agreements it seeks to provide FStage the right to receive a payout before the founders and to choose whether to participate in the general distribution of assets or whether FStage shall be simply paid back their initial investment before the general payout takes place. Should FStage elect to receive their initial investment, FStage shall not participate in the general payout distribution.
1x non-participating liquidation preference is the most commonly used Liquidation Preference alternative.
The non-participating liquidation preference may also have different multiples (e.g. 1,5x, 2x, 3x etc.), meaning that the Investor gets up to 3x of their investment before the general distribution of assets. 1x is the friendliest to founders while still protecting the interest of FStage investors. A participating liquidation preference would mean that after getting back the amount of investment, the investor would also participate in the general distribution of assets. Using multiples and participating liquidation preference is not in the interest of FStage.
The liquidation preference is required because FStage needs to protect its investors from losing their initial investment in case of liquidation (exit) of the startup.
- broad-based weighted-average anti-dilution protection
Anti-dilution protection is required to protect FStage’s interests in the case of a down-round (i.e. when company shares are sold cheaper than what FStage acquired them for).
FStage requires this right to limit any possible dilution attempts weakening its position other than normal fundraising process.
Normal fundraising and dilution shall be allowed and FStage shall be open to discussing any specific situations regarding share capital increase.
Anti-dilution shall not be applied in cases of issuing shares to option holders, converting convertible loans which the company has previously issued or if FStage (and other investors) have waived the application of the anti-dilution.
This is the most commonly used price-based anti-dilution adjustment mechanism, where, in the event of a down round, the nominal value of the Seed Preferred Shares is increased so as to make the average issue price ultimately paid by each holder of Seed Preferred Shares equal to the weighted average issue price of the shares issued in the seed round and shares issued in the down round.
- most favoured nation clause
applies in the case of convertible loan agreements. During the period of time where the convertible loan agreement has been signed but the loan has not been converted to equity, FStage retains the right to adopt any terms from agreements with other investors, if FStage considers the terms to be more favourable to FStage.
FStage requires this right to keep being treated equally to next round investors, ensuring that the interests of FStage investors are not damaged.
- pro-rata pre-emption rights
FStage keeps the right to invest in future rounds to keep its % of startup’s shares pro-rata as new Shares are to be issued. The company has to offer any such shares to FStage first. Decision regarding the use of the right will be made when a share capital increase occurs.
Issuance of options, option shares, or shares under previously agreed agreements are excluded from the pre-emption rights.
- customary information rights, also known as information rights
Fstage shall stay updated about any events happening to startup.
Startup shall provide the following information to all Investors: monthly report about financials, KPIs and other metrics in the format approved by the Investor Majority – within 15 days of the end of each month; annual financial statements – within three months of the end of each financial year; proposed annual budget for next financial year in the format approved by the Investor Majority – by the first of December of the preceding financial year; information on events and circumstances that may have material adverse effect on the Business, specifying actions taken or proposed by the Company – as soon as possible.
Investors may examine all books and records of the startup, inspect its facilities and request information at reasonable times and intervals concerning the status of the Company’s financial condition and operations.
Note! Investor’s information rights may be limited by the startup if such actions may cause significant damage to the interests of the startup.
- rights associated with the Shares, also known as Pre-emptive rights upon issues of new Equity Securities
FStage protects its shareholding in startup in case of issuance of Equity Securities, and uses the right as a prevention of hostile overtaking by startup or other investors.
Investors have the pre-emptive right: to subscribe for new Shares upon the increase of Share Capital; to acquire any Shares, options, convertible notes or other instruments giving their holders the right to acquire new Shares (through conversion, exercise or otherwise) that are issued or offered by the startup (the instruments in (a) and (b) together the “Equity Securities”). Pre-emptive Offer shall be made by startup at least in the form reproducible in writing.
- How to select the right KPI/OKR
2 months is very short time for most businesses. Yet what is small enough and relevant of which change in time is defined as a positive progress?
FStage advises to select a business metric or few metrics that startup already measures, what would reflect the change in time frame.
Please avoid metrics that are hard to measure by mentors or have no significance business-wise.
KPIs/OKRs are to be discussed during onboarding meeting with 3-4 mentors/investors prior starting validation program.
– KPIs/OKRs should:
a) be easily measurable and described unambiguously for startup founders, employees and mentors/investors.
b) be clear WHY it/these represent startup’s growth the best.c) give figures for mathematical formula how given change in time frame converts into confidence that this startup is “the ultimate catch” for FStage investors.
Think of, what happens when your startup is doing awesome, but your metrics don’t stand out among other 25 startups and investors decide based on wrong metrics!
– KPIs/OKRs should convince FStage investors:
1) that founders are capable and trustworthy;
2) that market pull exists for the product/service..
- Questions related to other aspects of our warrant terms
– During the FREE 2 month validation program there are 2 mentors reading reports, to avoid having any biases hindering startup’s chances to get funded.
– 18 months paid mentorship starts AFTER the positive investing decision has been made. That is the earliest 3-4 months after starting the 2 month validation.
FStage expects not to create additional burden to startup, except weekly reports and interaction with 2 mentors.
NB! Startups have the right to ask ANY FStage mentor ANY advice within 2 months FREE program. Mentors can’t decline, it’s written in their contract.– 18 month mentorship hourly cost is 150€/h, duration minimal 2h per month. Startups may extend if mentors can. Startup pays directly to mentors. FStage keeps info.
Exact payment terms are agreed once mentorship agreement is closed.Mentors rotate, each at max 6 months. Their goal is to help to implement “Growth Discipline Framework” and to offer any support they are capable of.
– Startups can request (free of charge) the change of any mentors if they fail to give adequate support, for both 2 months validation and 18 months mentorship.
– Fstage biggest fear is “what if the startup is such a perfect catch, and it wants to slip away”. So yes, it’s one-sided promise from startup to FStage to let us invest.
– FStage makes the investment transfer the earliest during 1 month after positive investing decision. The worst would be 3 months, that is due to investors agreement.
Only obstacles might be DD process/findings, investment contract, mentoring contract, should FStage have not enough funds raised at the time and is waiting for additional payments. Payouts happening later don’t serve FStage nor its investors interests.
– Warrant leaves an option to change any terms after 2 month validation program, if startup and FStage agree that it’s wise to change something.
– “Advisory board” is not necessary a formal one. It might be as well mentor board, from informal to formal. The aim is not to create bureaucracy, but maximum support.
This is how FStage mentors are able to monetise their skills, experience, network, to grow the startup valuation in given 12-18 months time.