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Venture capital: everything you need to know as a startup founder in Latin AmericaVenture capital: everything you need to know as a startup founder in Latin AmericaVenture capital: everything you need to know as a startup founder in Latin America

Venture capital: everything you need to know as a startup founder in Latin America

Learn what venture capital is, how it differs from angel investing and private equity, how startup investing actually works, and the pros and cons of VC checks

You wanna build a startup that will change Latin America but wasn’t born rich? Then we'll say something you probably already knew if you're reading this: bootstrapping can only take you so far, Fernanda. You'll have to face the music, and by that, we mean the process of negotiating venture capital for your early-stage business.

Why do you even need VC's money anyway? Because the journey of finding C̶a̶r̶m̶e̶n̶ ̶S̶a̶n̶d̶i̶e̶g̶o̶ product-market fit is a tortuous one. You'll probably need support in the form of cash to have time to crawl, walk, and finally run toward what your community needs. And only by discovering it, you can start paving the yellow-brick road of growth and profitability.

We know that getting people to sign you a check is indeed an anxiety-inducing endeavor, and that preparation is your best weapon to fight it. That's why your first lesson is understanding the art and science of venture capital like the palm of your hand.

Here's a guide on everything you need to know about venture capital: what venture capital is, how it is different from angel investing or private equity, how the venture capital investment process works, and the pros and cons of obtaining venture capital.

What is venture capital: VC's meaning and math

Venture capital is made of people and firms that pour money into endeavors known as startups. The definition of venture capital is an investment into an organization that looks for a scalable and repetitive business model, to take the startup definition of our friend Steve Blank.

And why would they do that? Are they mad?

Well, a little. VCs believe some nascent businesses have the potential to change the world. And with that, generate similarly ambitious returns to its early investors. After all, they wrote that venture a check when few believed in it and got a piece of the pie in return. When the pie grows and gets out of the oven, it's time to claim their share.

Seems easy peasy, right? But the thing is that VCs are left hungry most of the time. And they know that all too well.

Let's see the math of this madness. Founders in our community already know the harsh truth: only 2% of US startups that raise more than US$500k get to call themselves a unicorn. For Latin America, make it 1%). An even more scary stat: less than 0.1% of startups explain 97% of the profits ever created.

VCs know that some startups will fail. Some will just give their investment back. Some will give them a small multiple of return/investment. And then, there's the reason they entered the venture capital world in the first place: the few startups that will make it so big that they'll greatly compensate for all the other bad, so-so, and moderate results.

It's the power law: the best investment in a successful fund equals or outperforms the entire rest of the fund combined. Simply put, startup founder: your endeavor needs to be a venture capital fund returner. (And of course, have a huge impact on things as we know them while you do that.)

Venture capital history

From that opening, VC looks like the newest kid on the block. But the venture capital history takes from a mindset that goes way, way back. And that is the entrepreneurial state of mind of believing that high risk can be compensated with a high return.

Harvard's professor Tom Nicholas traces the faith in substantial but unlikely financial rewards back to the 1800s. In the same century that Moby Dick was written, the whaling industry was booming. Even though their participants knew that the payoffs had a skewed distribution, whaling voyages kept happening.

What changed in two centuries is that the hunt has shifted from whales to unicorns, and that the scenery is not New Bedford but Boston, then Silicon Valley, and finally the world.

In the 1940s, the first venture capital firm as we know it was incorporated. The American Research and Development Corporation (ARDC) assembled a dream team. Y'know, just MIT, the Federal Reserve Bank of Boston, and Georges F. Doriot (another professor from Harvard and VC's OG).

They've shown there was an interest from institutional investors in technology companies. Knowing rich families or falling into the grace of a traditional bank weren't the only options around anymore for tech founders.

T̶h̶e̶ ̶A̶v̶e̶n̶g̶e̶r̶s̶ ARDC's successes would inspire many others to follow that path and create VC firms in American states other than Boston. Davis and Rock was one of the first venture capital firms in Silicon Valley, and they invested in no big deals, like Intel and Apple 💅. Firms that you probably know by heart were created some years later, like Kleiner Perkins and Sequoia Capital.

As decades went by, technology arrived to the common folk and venture capital became a growing asset class. Specifically, in the last decade, that movement spread across the world. And now there's a spotlight in emerging regions, including ours truly Latin America.

If you're not that one founder that's been bootstrapping under a rock, you prolly know how the last decade was crucial for venture capital in LatAm. VC became a real fundraising route for startup founders in the region.

In the outlier year of 2021, more than US$ 5.4B were invested in Latin American startups, according to Association for Private Capital Investment in Latin America (LAVCA). Only Brazilian startups received US$ 2.9B, according to the Brazilian Association of Private Equity and Venture Capital (ABVCAP).

And even though we saw a slowdown in 2022, it was still the second-best year for VC in Latin America. 2023 is looking even more difficult than the last year, but let's remember that venture capital and entrepreneurship in general shine the most when the odds are not in our favor.

Investors and startups have matured, and that means that only businesses with real value will be allowed to receive checks, and even so, they'll be more conservative. It's in harsh soil that the best vintages are born. We'll toast with great wine a few years from now.

Investment rounds in a startup

Investment rounds are one of the most common ways for a startup to raise money to reach essential milestones and later on manage its growth. Venture capital firms are present at every step of the road.

The funding takes place at specific stages of startup development, and there's a name for each stage. We can divide investment rounds into four categories: pre-Seed, Seed, Series A, and Series B+.

Pre-Seed startup round

Let's start from the beginning.

And no, we're not talking about the Big Bang.

The pre-Seed round is for startups that don't have a finished product yet and are looking for resources to develop it. These are the ideation and minimum viable product (MVP) stages.

As the first investment round in a startup, this is also the riskiest investment from the VC's perspective. At this stage, it's like you're asking for money to buy a bike so that you can learn to ride it, enter a competition, and take home the champion's trophy.

You need to show the investors how you are the one to take on that loooong endeavor, and why that competition even is important in the first place. Sounds tough, right?

That's why it's common for this first round to be carried out with contributions from the founders themselves and from their friends, family, and fools first believers. We know your momma will still love you, even after your 7th pivot.

Seed startup round

In the Seed round, the startup generally has an MVP. However, it still needs funds to finance the validation of your startup, aka product-market fit.

As with the pre-Seed, the Seed round is also in the category of the riskiest rounds for investors. There's still a high chance that the startup cannot make its product viable for the market, and that the money raised isn't enough to support the number of pivots needed to make the business finally work. VCs can't breathe freely just yet.

Receiving a Seed round is like having a parent holding you while you start to pedal. When they let go, you still have a high chance of falling. On the other hand, you might just cycle away. As we've said time and time again, product-market fit is the make-it-or-break-it point for your startup.

Series A startup round

In the Series A round, the startup already has the product created and validated. Did I just hear a sigh of relief in the back?

What's missing now is an investment that will allow the business to scale, which can be translated as executing go-to-market strategies.

That's a stage most venture capital firms are comfortable investing in, with just the right amount of risk for this asset class. (By the way, get your numbers game on here. Investors are demanding to see profitability on the horizon at this stage, warns our friend Paulo Passoni.)

In the bicycle analogy, you now know how to ride without assistance but you need more energy and stamina to overtake the competition and finally reach the first position in the championship.

Series B startup round (and beyond)

The next stage is the Series B round. What we'll talk about here applies to the following rounds (Series C, D, E, and so forth).

At this point, we are already talking about a consolidated startup in the market. What's lacking now is capital to continue the journey that will take the startup to the top of its market segment and to profitability.

Now you are a professional high-performance athlete in cycling and you have the necessary conditions and skills to take home the trophy. In this round, investors are either venture capital or private equity firms (more on that in a second).

Angel investing x venture capital x private equity

A startup generally starts with the founder's time and money. I don't know about you, but that's generally not enough to support a startup's journey to PMF. And that's when external investment comes into play.

An outside investor provides financial resources to the company in exchange for a part in it, known as an equity stake. The shares an investor receives could represent 5%, 10%, 15%, or 20% of the company, for example.

Venture capital is just one form of external investment. Let's check how it compares to other common ways startups finance themselves in exchange for equity stakes, such as angel investing and private equity.

Difference between angel investors and venture capital

In angel investing, the investor is an individual who provides financial resources to a startup in exchange for an equity stake in the business.

That's the first difference from venture capital firms. While angel investors invest their own wealth, VCs pool resources from both individuals and institutions. These investors are known as limited partners or LPs, while the firm's members are known as general partners or GPs. The GPs become responsible for choosing startups and deploying that accumulated capital invested by the LPs.

Angel investing is most common in the earlier stages of startup fundraising, such as pre-Seed, Seed, and Series A rounds. On the other hand, venture capital firms cover a wider range, from these early stages to later stages.

Another difference is the size of the written check. Since angels are individuals and firms are investment managers, it's expected that an angel invests less money than a VC firm.

The stake can vary, depending on when the angel investor enters the cap table. Since the angel generally enters the scene before a VC firm does, they could very well access a lower valuation and ask for a bigger stake, proportional to the risk taken. Learn more about founder equity dilution and how to avoid being too diluted in your own startup.

Difference between private equity and venture capital

Venture capital (VC) and private equity (PE) are very different investment avenues, even though both are firms that manage third-party capital and have active participation in making the invested companies improve their strategy and grow.

Venture capital is aimed at younger and more innovative companies. They're raising capital to reach essential milestones for their growth journey, such as consolidating product-market fit and go-to-market strategies.

On the other hand, private equity is a type of investment aimed at established and mature companies. Private equity investors look for companies that already have reached essential milestones and show a track record of successful operations and consolidated cash flow. Typically, these companies are looking for resources to finance the advancement of their growth and profitability through restructuring, expansion, or acquisitions.

As you might have guessed by looking at the invested companies, another main difference between VC and PE is the degree of risk and expected return.

Private equity is an investment more suitable for investors looking for opportunities in the conventional corporate market, accepting a return that's just above publicly traded stocks. Venture capital is for investors who accept the high risk involved in financing a nascent startup, looking at its fast growth and return potential.

Think about where your startup is in its journey and what it needs when deciding between angel investing, venture capital, or private equity. If you're still confused about what's the right match for your business, check out the seven stages of a startup, from growth to maturity.

Investment process in venture capital

No matter the potential your startup has to change the world and achieve stellar profits, it will still be a difficult mission to convince VCs to write it a check. And now you know why: you either return the fund or you go home. That's power law for you.

Now that you know how VCs think, it's time to understand the investment process venture capitalist follow, and how you can set your startup up to have a better chance when fundraising.

1. Deal flow and sourcing: warm x cold intros

The first stop is deal flow and sourcing. VCs receive a lot of investment opportunities and it's their job to analyze which ones they should keep dedicating their time to or not.

Deal flow can come from warm or cold intros. That just means they can know startups from referrals from close founders or investors, or from a message on social media from a never-seen founder. Generally, the warmer the intro, the better the chances to be sourced by the VC.

2. The first meeting: don't pitch, chat

After a successful intro, you and the VC need to have a first meeting. Traditionally, that involves the preparation of a pitch deck, or a presentation of the problem, the founding team, the startup's business model, growth and revenue strategies, and the milestone to be achieved with the asked funding.

Well, guess what? We advise you to do something else to stand out in that first meeting. A pitch deck serves many purposes, and being the middleman between you and the investor is not one.

Instead of presenting a screen and going slide by slide, tell the investor that you wanna have a chat. Your first job during this chat is to understand how they perceive the problem and the market. If needed, clarify their doubts and educate them. Keep them engaged by asking questions and getting them to become a part of your team.

This is just one of the tips we got from Marcial Fraga. Latitud's venture capitalist has shared the lessons he learned from analyzing more than 1,000 pitches in a session for Latitud's community.

3. Deal terms: avoid term sheet pitfalls

After that first meeting, which already leaves many businesses to dry because they just couldn't connect with and convince investors, the entrepreneurs will go through a series of meetings to analyze the startup in greater detail and agree on the terms of the investment. After signing the papers, you're golden ✨.

You should always have a lawyer by your side before committing to anything. Still, you shouldn't leave the room without understanding everything that has been written down in the document that describes the conditions of the deal, known as a term sheet.

The term sheet serves as the basis for more detailed and legally-binding documents. And pay attention right now: there are two types of early-stage startup investors. Those that want to grow with you, and those that want to grow to your detriment. Luckily, term sheets are a good indicator of what type of investor you’re dealing with.

Some of the most common themes in the term sheet are equity ownership and the valuation of your company. Learn here the most seen term sheet pitfalls so that you can spot red flags from a mile away and reach a better position to negotiate terms with VCs.

4. Venture capital's exit and return on investment

Venture capitalists don't have a crystal ball. Even though they analyze again and again, not every startup will actually become the fund returner they envision. That's why every venture capital fund has a portfolio.

VC firms can have from tens to thousands of startups invested in their lifetimes. And each startup on the portfolio has an Internal Rate of Return. IRR is a financial metric that aims to determine the potential profitability of a business.

VCs are always checking the results of the startups on their portfolio, including IRR. That's just one of the indicators that helps investors to decide in which business to double the bet. And that's made with follow-on rounds.

Basically, a VC firm can invest once again in a startup in its next fundraising round, to keep the same percentage of ownership in the business.

Imagine that you have a glass filled with water. The glass is the total amount raised by the startup, and the water is what this VC firm has invested in it. When the next round happens, it's like the glass grows taller. To keep the same proportion of glass and water, the VCs need to pour liquid again, in the form of a follow-on investment round.

Each investment has its own IRR since it was invested in different valuations. VC firms will only know the total real rate of return on their investment when an exit happens.

An exit is a liquidity event. It allows investors to sell their shares and put money back into their pockets according to the current valuation of the startup. The most common forms of exit for a startup are:

  • When founders buy back equity from investors;
  • In a new investment round, when an investor can sell his share to other investors;
  • During an M&A operation with a larger company;
  • When the startup goes public.

Venture capital's valuation method

A startup's valuation is the worth assigned to that startup based on the projections of its venture capital investors.

A financial asset is only as valuable as the market deems it to be, says Keynes. That's pretty clear when you check stock prices going up and down. In the startup land, however, valuations are only redefined when a startup raises a new round.

So defining how much the business is worth is a task for current investors. The thing is that using only the traditional method of discounted cash flow, bringing future revenue values to the present, doesn't work. Benchmarking is useful but also hard since early-stage startups can differ a lot from previous businesses in the same segment.

Much of the value of a startup is locked into intangibles and into revenue that can only be achieved after certain milestones. And who knows how long will reaching these milestones take, and if they'll actually be reached...

So VCs generally use a series of approaches and criteria to better the odds of reaching a fair number. In Venture Capital and the finance of innovation, Andrew Metrick and Ayako Yasuda ask themselves some questions that might make you, startup founder, more aware of how VCs think when defining your company's valuation. Here they are:

  • What would be the fair value of this startup in the future, knowing possible exit avenues?
  • How likely it is that this fair value will be reached?
  • How long do we expect this exit to happen?
  • How many investment rounds do we expect to happen before the exit happens, and with that, what's our expected dilution?
  • Given all the risks involved, what's our expected rate of return? In other words, what's the cost of capital for this startup?

Our CEO Brian Requarth also talks a lot about the founder's perspective on what makes a startup valuable in the eyes of an investor, being an entrepreneur and a VC himself. In Viva the Entrepreneur, he lays down some essentials:

  • VCs need to see that there's a way for your company to become massive. It's the power law once again. Investors are looking for a problem that's so big that the one who solves it will for sure become a multimillionaire business (and a fund returner). Even if you work at a niche right now because your startup only has so many resources, show them how you can address other customer segments and execute a grand vision in the long term.
  • What's next, team or traction? Depends on the stage, Brian says. In the earlier stages, the founders behind the business are a very important factor. When you're talking about a private equity deal, traction and growth become more relevant. Of course that the more signals you give to VCs that you're a good deal, the better!
  • Always work on getting more and more recommendations. Remember when we talked about warm and cold intros? Who's recommending you says a lot to your potential VCs. Get your game on and connect with good founders and VCs. Having a well-known investor in your prior round will make the next round's negotiations go much, much smoother.

How do venture capital funds make money?

1. Equity

Making an investment means getting a percentage of a startup. When the company grows and becomes more valuable, so does an investor's stake in it.

Example: an initial investment of US$1M can later be valued at US$10M, as the company raises more capital and becomes profitable.

2. Management fees

VCs charge their partners an annual fee to cover operational expenses, and this is their primary form of liquid compensation.

Example: most funds will charge something around 2% of the amount their limited partners have invested.

3. Follow-on investments

Investors will sometimes have the opportunity to increase their stake in a startup by investing more money – a smart move when a company shows signs of success.

Example: if a VC held 5% of a company and the value of their stake was multiplied by 5 in two years, they'll want to double down to secure a bigger percentage.

4. Carry

When a liquidity event like an IPO happens, VCs can sell their shares of their startup for a profit.

You might have seen bigger and bigger funds being raised in hopes of earning more in management fees. That's pocket change compared to how much money can be made by betting on the winners. The carrot's in the carry, folks.

Example: If a VC invests US$1M and liquidates its position for US$10M, a percentage (usually between 15% and 30%) of that US$9M profit belongs to the fund.

How to apply and get venture capital funding

For companies seeking venture capital investment, it is important to note that investors have never been so selective. They want a painful problem, a massive addressable market, a stellar founding team, a top-notch customer experience, and good financial projections to top it all off.

Yep, the pressure is always on when you're fundraising.

But that doesn't mean you can't learn to deal with it.

For that, break down fundraising into a process.

That's a tip we hear time and time again from investors like Jason Yeh (Adamant Ventures), Latitud's Marcial Fraga, and the trio Antonia Rojas Eing (ALLVP), Gabriel Vasquez (a16z), and Jonathan Lewy (Investo).

Here's a summary of the steps recommended by these VCs to increase your chances of receiving venture capital funding:

1. Achieve calendar density

This means getting your agenda out there and scheduling meetings with all investors that are relevant to your business in the span of one or two weeks.

Calendar density creates a situation where investors can feel the fact that they're not the only ones in the fundraising game. It also gives you, the founder, more confidence. Didn't work out? There's another opportunity right around the corner.

2. Do your due diligence

Just like investors like to do due diligence on the startups they invest in, you should also have your own due diligence on your potential investors.

Don't let the pressure of getting an investment offer stop you from knowing if they're the right fit for you just as much as you need to know if you're the right fit for them.

Research online, talk to their portfolio companies that doing well and not so well, and ask all the questions you want. That shows VCs that you care about making this marriage work.

3. Have the right corporate structure

A little dedication right from the start can save you not only a lot of headaches but also the loss of millions of dollars. These losses don't just come from taxes (remember how the wrong corporate structure made Brian lose US$ 100M?), but also from investors who won't put money into your business.

We've already talked about this in our guide for you to start with the right corporate structure for your startup. When you raise larger rounds or when you raise with international investors, having only one local operation can worry them about unexpected financial and legal obligations. Startups are already risky enough, Jaime.

4. Work on your first impression

VCs won't wait for the last trick under your sleeve to make their judgment. They are evaluating you and your startup from the very first deck slide and the very first seconds of your speech.

So you need to take care of your first impression. Every aspect of your communication matters for that, from your body expression to your storytelling. Investors need to remember your case when they come to the weekly meeting where decisions are made.

5. Emphasize the problem enough

The very first message you need to communicate to venture capitalists is how big and serious the problem you're solving is.

Founders usually just wanna get on with it and jump directly to their solution. Your first lesson here is to stress the problem you're solving more and in an empathic way.

Make sure that the investor understands before you move forward. Assume nothing. VCs will only invest money if they connect with the problem you are trying to solve, and that can only be done if you really show how deeply this problem affects certain people.

Not selling the solution will give you the necessary space to eventually pivot our expand your offering. Focus on your customer and not on your ideas.

6. Know your market like the palm of your hand

While we're talking about your customer… There's no worse feeling than getting to your pitch and realizing you can't explain your business or the market you're in with confidence. Before going into a meeting with investors, make sure you have that part nailed down.

You should know about your company's market, mission, strategy, and numbers. Moreover, you should be ready to explain why your pitch is different from your competitors.

7. Don't downplay the risk of your startup

In your pitch presentation, you might be tempted to assure investors that the business will do well, and use conservative metrics to make sure they deliver on that promise.

But we've said this before: VCs know there's a good chance that your business won't keep afloat. On the other hand, they are also expecting your business to bring a big return if it sails.

So do not talk about the specific niche you're serving right now: pitch your whole sector and present long-term plans and projections. Instead of proving that the company is successful in the present, provide evidence of a clear path to becoming a unicorn. That's the narrative you need to create – coupled with you being the right person to attack that relevant problem and market, of course.

8. Identify and develop your signals

An essential presence in a pitch is the set of signals that make your startup the one that's ready for success.

The first signal can be the founders and team's backgrounds – from a degree from a prestigious school to a personal challenge they overcame. Other good signals skillsets and the company's recent quantitative or qualitative achievements (from other investors on their cap table to a sales milestone).

It's imperative to find and communicate an area where you are in the top 1%. After the problem and the market, signals are the next piece for a VC to consider whether you can be that fund returner or not. Even better if you follow step 2 and study the VCs you want a check from in order to identify which signals they value more!

9. Build a relationship with investors

Just like you had to build a relationship with other founders and investors to eventually get that warm intro, you also need to get closer to your current potential VCs.

Here's a valuable way to build trust with these investors: when you say you're going to do something, actually deliver on it.

Even if you end up receiving a no after all the relationship-building, don't burn your bridges just yet. It doesn't necessarily mean that you will never get a check from that VC – you might just need to work on some parts of your business. Deliver on it once again, and reconnect.

10. Ask for more feedback (and really learn from it)

You'll only know what you might need to work on if you're open to receiving feedback from investors. It doesn't matter if you received a yes or a no: always ask for as much feedback as VCs can give you, and both investors from your industry and from outside.

Double-clicking on feedback is a massive green flag for investors. But you can't stop at asking for feedback: actually be interested in hearing it. Take what makes sense, and don't take what doesn't. But always stay curious and ask for the real deal, no BS.

Pros and cons of venture capital for your startup

It is important to note that venture capital is not the only financing option available to startups. We've talked about angel investing and private equity but there's also equity crowdfunding, venture debt, and so many other alternatives for raising funds.

Startups seeking capital need to strategically evaluate the different options available to finance their growth, and choose the one that best suits their characteristics and needs. So here are the pros and cons of going down the venture capital road in your startup's fundraising efforts:

Pros of venture capital for your startup

  • Provides capital even for early-stage companies to start their operations;
  • Unlike bank loans, companies do not need to reach a certain cash flow or value of assets to secure funding;
  • In addition to funding, VCs can also provide mentoring and networking services. These can be an essential help for the new company to secure talent and grow, for example.

Cons of venture capital for your startup

  • Fundraising is a lengthy process that consumes both your time and your mental capacity. Be prepared to work on it;
  • VCs typically require a large equity stake in the company to balance the risk they're taking. Always watch out for your dilution;
  • Accepting venture capital investments will lead to some loss of autonomy, as investors can demand pro-rata rights, liquidity clauses, and protective provisions in the term sheet;
  • There's more pressure on the startup to explain good and bad results and to have a time horizon for milestones, possibly including the dreamed liquidity event.

Venture capital glossary

You can always check all the relevant terms for founders in our glossary for venture-backed startups. But here are some venture capital-related expressions we have addressed during this article:

Angel investor 👼

True to their name, angel investors are individuals who are willing to take a risk on you when almost no one else will. The most sophisticated angels bet on several nascent startups, building their own portfolio and often using their knowledge and network to help lead those companies in the right direction.

Calendar density 🗓️

Part of Latitud's Fundraising Playbook and popularized by our mentor Jason Yeh, building calendar density means getting your agenda out there and scheduling meetings with all investors that are relevant to your business in the span of a few weeks.

It's a tight window of time where everyone gets to know you, your business, and that you're fundraising now. You keep your leverage, and investors have to decide quickly if they're in or out. It's all part of the strategy and planning behind the process: if you space pitch meetings too much, you run the risk of staying on the back burner while the funds go after the hottest deals.

Cap table 🗂

A cap table is essentially a list of who owns what in a company. Clarifying this information early on can be important to help prevent any future conflicts.

Liquidity clauses 🫠

Every term sheet has liquidity clauses. They determine how and in which order investors will get paid, and also serves to protect them if startups exit at a value lower than expected.

Liquidity event 🤑

A liquidity event is an action that allows shareholders to cash out on some or all of their investments, aka get those monies! A liquidity event can be a merger, acquisition, initial public offering, tender offer, etc.

LP 👥

“Limited Partners” (LP), aka “Silent Partners,” are investors, often in VC funds, that have ownership in the companies those funds invest in. The “Limited” part of their name refers to their ownership and obligations, most importantly that they cannot assume more of the company's debt than what they invested into the company.

Pro-rata rights 🤞

Pro-rata rights give the investor the right to maintain their percentage of ownership during future investments. So after another investment round, you’ll have to accept further investments and issue additional stock for companies with pro-rata rights.

Protective provisions 🙅

Protective provisions are basically veto rights. They're one of the main control features an investor has over certain decisions of the company. Protective provisions are a normal topic of discussion during term sheet negotiations.

Stay tuned

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