Frequently Asked Questions

Germany: What terms should I negotiate when issuing preferred equity?

When negotiating terms as part of an equity financing of a German startup, it's important for founders to balance attracting investors with protecting control and vision for the company. Here are selected key terms to be considered that normally appear in a term sheet for an (equity) financing:

  • Investment Amount Raised
  • Pre-Money Valuation
  • Type of Security
  • Representations, Warranties and Remedies
  • Preference Dividends
  • Liquidation Preference
  • Subscription Rights in Future Financing Rounds
  • Anti-Dilution Provisions
  • Board Representation
  • Investor Veto Rights and other Protective Provisions
  • Information Rights
  • Share Transfer Restrictions
  • Founder Lock-up and Founder Vesting
  • Right of First Refusal
  • Tag-along/Drag-along Rights
  • Employee Incentive Schemes (ESOP, VSOP and Co)
  • Exit / IPO Strategy
  • Non-compete / Non-solicitation Obligations of Founders

A term sheet may include even more provisions; the more that is negotiated and laid out clearly in the term sheet, the fewer issues there are to negotiate when drafting the financing documents.