Structure . . .

refers to the combination of debt and equity an investor receives for funding a company. Sometimes called "deal structure," it covers the timing of his funding and the protections and exits he receives. For example, one structure may call for $1 million to be invested in a company in return for 20 percent of the company’s outstanding stock. The deal might require all of the money to be invested at once and might include piggyback registration rights and a right of first refusal. Another structure might call for the money to be invested in stages as the company meets certain benchmarks and might require preferred stock or convertible debentures to be issued to the investor. That investor might also receive demand and piggyback registration rights, rights of first refusal, puts, and options to purchase additional shares. Both might require antidilution rights, but the amount of antidilution protection they require may be very different.

Most of the negotiations in a venture financing revolve around the price and structure of the proposed deal. Revising a structure can turn a bad deal into a good one, or vice versa. To negotiate effectively, management and its advisers must understand the ramifications of the various deal structuring devices employed by investors and the concerns of investors those devices are designed to address. Those devices and concerns are summarized in the Venture Capital Deal Structures entry of this book.  See also: Antidilution Provisions, Benchmarks, Buy-Sell Agreements, Calls, Convertible Securities, Co-Sale Agreements, Debentures, Earnouts, Earnups, Equity Penalties, Exits, First Refusal Rights (Company), First Refusal Rights (Shareholder), Fully Diluted, LBO (Leveraged Buyout), Leverage, Liquidity Agreements, Negative Covenants, Negotiation, Personal Guarantees, Preferred Stock Umbrellas, Pricing, Projections, Puts, Registration Rights, Reps and Warranties, Revenue Participations, Shareholders’ Agreements, Stage Financing, Take-Away Provisions, Weighted Average Antidilution.