What Price Adjustments Do You See Prior To Closing In A Financing?

15 March, 2016

(Editor’s note: This column is published with permission from )

Q: Can you please explain what sort of adjustments you should expect to the price that a VC promises in a term sheet between the signing of the term sheet and signing of a final stock purchase agreement (SPA)?

A: To answer your question, we first need to determine what the definition of “price” is. I don’t care what price per share I pay. It’s an irrelevant number. What’s relevant is the pre-money valuation. That, along with my investment will determine what percentage of the company that I own post investment. For more on this, see this .

If the question is “how often do I see the pre-money valuation change from term sheet to SPA” that answer is almost never. Only in rare cases of something material happening to the company, I tend to think “a deal is a deal.”  If something that bad happens to warrant a price change, it’s probably more likely that the entire deal falls apart.

The only other situation that could potentially change the valuation / price is if something is found in diligence that wasn’t known to the VC at the time of term sheet. For instance, if founders have deferred salaries or have debt that need to be paid back and a large chunk on the financing is going to be immediately used, this too might change the economics.

If you define price as the “price per share” (not having anything to do with valuation), then I would tell you that I think EVERY deal that I’ve been involved with has had a price adjustment during this period. The price per share is based on the outstanding equity of the company and rarely does this get 100% figured out until right before closing. 


Leave Your Comment
Startup funding: All you want to know about term sheets

Startup funding: All you want to know about term sheets

Vijay Sambamurthi 1 year ago
Startups and funding go hand-in-hand. First-time entrepreneurs are keen to bring angel investors and VC funds on board. That’s when all the documentation and legalities...
Goodwill, more plug than asset

Goodwill, more plug than asset

Aswath Damodaran 1 year ago
There is no asset on a company’s balance sheet that wreaks more havoc on valuation and good sense than goodwill. The first problem with goodwill...
Jolly's Volley: It's Now Bubble Bath 2.0 For E-commerce

Jolly’s Volley: It’s Now Bubble Bath 2.0 For E-commerce

Mohanjit Jolly 6 years ago
Let me start off by saying that I had initiated this article towards the end of 2010 or early 2011, but simply never got around...
No Comments

What Price Adjustments Do You See Prior To Closing In A Financing?

Powered by WordPress.com VIP