Startup Boards — Early Exit Deal Structure

Investing in startups is risky. One way to reduce the risk is to define the exit. 

TEN Capital’s Early Exit term sheet is a convertible note with a 3X in 3-year redemption right at ‘investor sole discretion’ to provide the investor an option for an early exit. 

The investor receives 3 times their investment 3 years from the date of investment.  

So, $100K in yields $300K out.

A 3X return in year three from the initial investment yields an IRR of 44%.   

‘Investor sole discretion’ means each investor makes their own choice about continuing in the investment or not at year 3.

If the investor takes the early exit, then a payment plan is worked out.

There are several benefits, such as:

– Let’s you define the exit for your investment since most startups raising equity funding cannot 
– Provides the option of short-term exit or long-term equity investment
– Gives the startup the opportunity to prove itself, and then the investor chooses between holding a short or long-term investment.
– Easier to implement than revenue-based funding

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.