Kruze clients are twice as likely to get acquired as the average startup.  Find out why here
Kruze Consulting Navbar Logo
  • (415) 322-1610
  • Contact Us
  • Accounting & Bookkeeping
    Name
    Startup Accounting

    Maximize Your Startup’s Potential

    Name
    Startup Bookkeeping

    Services for High-Growth Startups

    Name
    Strategic Financial Accounting

    Strategic Accounting Boosts Your VC-Funded Startup’s Financial Future

    Tax Services
    Name
    Startup Tax Services

    Tax Services for VC-Backed Startups

    Name
    Startup Tax Returns

    Filing Tax Returns for VC-Backed Startups

    Name
    Delaware Franchise Tax

    Calculate Your Delaware Franchise Tax

    R&D Tax Credits
    Name
    R&D Tax Credits

    Unlock Your Startup’s R&D Tax Credit Potential

    Name
    R&D Tax Calculator

    How much can your startup save in payroll taxes?

    Advisory services
    Fractional CFO & Advisory

    VC Due Diligence

    Startup M&A Accounting

    Financial Modeling Services

    409A Valuations Services

    Part-Time CFOs Services

  • Pricing
  • Name
    About Us

    Learn more about Kruze Consulting

    Name
    Partners

    Our partners are the best in the business

    Name
    Reviews

    See what our clients say about us

    Name
    Careers

    Join our team of startup accounting experts

  • Early-Stage Tax Tips

    Guide to Seed Stage Tax Returns

    Do unprofitable companies need to file tax returns? Yes! Read our tips now.

    Guide to Seed Stage Tax Returns

    Knowledge base

    Name
    Startup Q&A

    Answers to hundreds of startup accounting, finance, HR and tax Q's

    Name
    Blog

    Expert startup accounting advice (and more)

    Name
    Case Studies

    See how we helped our clients save money and grow their businesses

    Top Financial Tips and Resources for Startups

    Name
    Startup Financial Health Tools

    Tips for setting up scaleable financial systems

    Name
    Free Financial Models

    Free to download financial models

    Name
    C-Corp Tax Deadlines

    iCals with federal, state and local compliance deadlines

    Name
    Best VC Pitch Decks

    See more of the best pitch decks ever used

    Name
    CEO Salary Report

    Data on what CEOs are paid

    Name
    Best Startup Credit Cards

    After working with hundreds of startups, we picked the best credit cards

  • (415) 322-1610
  • Contact Us
  1. Home
  2. Blog
  3. Structured Term Sheets in Late-Stage Venture Capital

Structured Term Sheets in Late-Stage Venture Capital

by
Kruze Consulting Kruze Consulting

Kruze Consulting

Last updated: August 1, 2024
Published: August 15, 2022

Structured term sheets in late stage venture capital - they’re back!

Structured term sheets in late stage venture capital - they’re back!

Highly structured term sheets - this is a type of venture investing that went away during the boom times, but now that the funding marketing is cooling, it’s back. 

What are structured VC term sheets?

Highly structured venture investments are almost debt that sits on top of the existing equity capitalization structure. It is still on the cap table, but has senior preferences. This means that these investors get paid back before the other venture investors (and before the equity investors). These investments are often used to prop up high private company valuations for startups that are having problems raising fresh rounds of capital.

There are some funds that are just dedicated to doing these types of rounds, or hedge funds that smell an opportunity. 

Overly High Valuations Drive Structured Term Sheets

In the middle of 2022, there are a lot of companies sitting around with valuations that are just too high relative to where the market is now. But these companies still need to raise capital to support their operations (and hopefully support their growth). but those companies might still need money. And so the hedge funds, or structured players, see an opportunity to come in, give the company money, and get a senior equity security. And these investors require a very heavy  dividend (paid in kind) or cash pay component. So they’re getting a synthetic interest, or a real cash interest, out of the company to compensate them for investing in the company and propping up the valuation. 

Definition: Paid in Kind - PIK

Many of these structured investments have PIKs –  “paid in kind.” This means that the structured equity has a dividend that has an interest rate that is paid in equity. So the equity position actually continues to increase. So instead of maybe all cash dividends it could be half cash dividends and half paid in kind dividends in the form of extra senior preferred equity. 

PIK positions mean that the investor is increasing their ownership position over time. And, since the payment is in the form of the structured equity, the basis for the dividend percent increases as well – it’s compounding. So the investor gets more ownership in the company and gets a compounding dividend paying stock. 

Why startups accept structured equity

As we’ve already discussed, the major reason startups accept highly structured investments is because it preserves the company’s (high) valuation. These investments are often done at the existing valuation. It’s just a different security. Founders like this for several reasons, the first being ego. Being able to say you’re a unicorn is a big deal, and it would be very humbling to have to do a recap and bring that valuation down. 

A declining private company valuation may also impact the company in other ways. It is possible (and likely) that your existing preferred shares have a “pay to play” provision. This provision essentially forces the existing VCs to invest to protect their existing ownership. If funds have limited reserves available, and if the startup in question has been around for many years, the funds may not have the capital available to participate in the pay to play. So the existing investors are also incented to keep the valuation high so that they don’t have to step up with a big check. They also want to take the highly structured term sheet. 

The later-stage funds are fresher funds, they’re usually only a couple years old, and they could protect their own ownership position. They could write another check usually pretty easily, but they also don’t love down rounds, mainly because this indicates that they recently invested at too high a valuation. So a lot of VCs do not want to do this. 

Sometimes there’ll even be arguments between the VC syndicates inside of a company on the cap table or between the VCs and the founder, because it makes it really hard to raise another round after a highly structured term sheet. So, if a company does succeed in raising a highly structured round, the founders often have to be very careful how they burn cash, so that they company can reach an exit prior to running out of cash (or become cash flow positive).

If you have other questions about VC financing for startups, you can find information on our YouTube channel under Financing a Startup, or contact us.


Contact Us for a Free Consultation

Get the information you need


Previous Post
What is a VC fund capital call?
Next Post
Controller vs. CFO

Startup CEO Salary Calculator

US Based Companies that have raised under $125M

  Redirecting to results  

Top Articles

  • Pre-Seed Funding + Top 20 Funds
  • eCommerce Accounting
  • Accounts Receivable Loans
  • What is the 2% and 20% VC fee structure?
  • How much does a 409A valuation cost?
  • What are Your VC’s Return Expectations Depending on the Stage of Investment?
  • Fractional CFOS
Kruze on X
Email Us
RSS

How much can your startup save in payroll taxes?

Estimate your R&D tax credit using our free calculator.

r&d tax calculator

Signup for our newsletter

Popular pages

  • SaaS accounting 101
  • Best accounting software
  • Top banks for startups
  • How to account for convertible note
  • Average CEO Pay
  • Startup Tax Returns
  • Best VC Pitch Decks
Related content:
What does additional paid-in capital (APIC) mean for startups?
Sun, 22 December 2024
Guy Kawasaki Pitch Deck: The Ultimate Guide
Wed, 25 September 2024
Closing the Deal: The Final VC Meeting
Wed, 21 August 2024
Working Capital 101 for Startups
Tue, 20 August 2024
Also read:
What’s the difference between primary and secondary shares at a startup?

What’s the difference between primary and secondary shares at a startup?

Kruze Consulting's COO, Scott Orn, identifies the key differences between a startup’s primary and secondary shares and what happens when they are sold.
Wed, 21 August 2024
What is a VC fund capital call?

What is a VC fund capital call?

VC Fund Capital Call
Wed, 9 August 2023
How often should an early-stage startup have board meetings?

How often should an early-stage startup have board meetings?

This is an important question when it comes to Series A and Series B startups. 
Thu, 1 August 2024
What is a Bridge Loan?

What is a Bridge Loan?

Follow along as Kruze Consulting’s COO, Scott Orn, breaks down bridge loans, their purpose, and whether or not your startup should pursue one.
Mon, 7 October 2024

Kruze is a leader in accounting services for startups

With over $10 billion in funding raised by our clients, Kruze is a leader in helping funded startups with accounting, tax, finance and HR strategies.

Thank you!

✅ Your request has been submitted.
We will contact you shortly.

Enter your name
Enter Company name
Enter Phone number
Enter Email
Enter Message
 
By clicking Contact Us, you consent to receive automated messages from Kruze Consulting. Reply STOP to opt out. Terms of Service | Privacy Policy.
  • VC Tips

  • VC Pitch Deck Templates
  • Startup Pitch Deck Course
  • Pre Seed Funds
  • Startup Financing 101
  • Kruze Reviews
  • How VCs Think

  • VC Return Expectations
  • Where VCs Get Their Money
  • How much VC to Raise
  • What is a VC Capital Call?
  • VC Due Diligence Checklist
  • Early-Stage Securities

  • Typical VC Securities
  • Convertible Notes
  • Convert Accounting
  • SAFE Note Accounting
  • Option Pool 101
  • Interacting with VCs

  • Startup Investor Update
  • VC Information Rights
  • Due Diligence Checklist
  • Right of First Refusal
  • Startup Runway Calculator

Kruze Consulting Logo Kruze Consulting

Kruze Consulting is a licensed CPA firm; California Board of Accountancy license number 7637

  • Team
  • Pricing
  • Careers
  • Kruze News
  • Reviews
  • Contact Us
  • Security
  • Privacy Policy
  • Terms of Service

Copyright © Kruze Consulting 2025

We may monetize some of our links through affiliate advertising. At any moment, executives or team members may own public or private stock in any of the third party companies we mention.

Do Not Sell or Share My Personal Information

Resources

  • Startup Resources
  • Startup Q&A
  • Case Studies
  • Kruze Blog
  • C-Corp Tax Deadlines
  • Startup Accounting Dictionary

Free Tax Calculators

  • Startup R&D Tax Credit Calculator
  • How Much Does a Startup Tax Return Cost?
  • Delaware Franchise Tax Calculator
  • Burn Rate and Cash Runway Calculator

Startup Tips

  • Startup Expense Management 101
  • 10 Best Banks For Startups in 2025
  • Startup Payroll
  • Best Accounting Software for Startups
  • Startup Tax Compliance
  • How to Pay International Employees & Contractors
  • Startup Bill Pay Service

Locations

  • Austin
  • New York City
  • San Francisco
  • San Jose
  • Santa Monica

Social Media

  • Kruze Consulting on Youtube
  • Kruze Consulting on LinkedIn
  • Kruze Consulting on Twitter
  • Kruze Consulting on Yelp

Industry Expertise

  • SaaS Accounting
  • Biotech Accounting
  • AI Startup Accounting
  • eCommerce Accounting
  • Hardware Accountants
  • CPG Accountants
  • Crypto Accounting
  • Healthcare Accounting
  • Startup Accounting
  Talk to a leading startup CPA
  • Is the content on this page useful?

Thank you!

Your feedback is very important.

READY TO CONNECT FOR A FREE CONSULTATION?

We are the experts at helping seed/VC-backed Delaware C-Corps with their accounting and finances!

Talk to an experienced accountant, not a generic sales person

Alex Janeck Kruze Consulting
Alex Janeck
Edith Silva Kruze Consulting
Edith Silva
Will Martin Kruze Consulting
Will Martin
Viz AI

$250M+ VC Funding Raised


"I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze."
Chris Mansi

Chris Mansi

CEO

Startup Venture Capital Assistance

With former venture capitalists on staff, our team is here to help you navigate the fundraising process and manage your board of directors

Vanessa Kruze Kruze Consulting
Vanessa Kruze
Founder & CEO, CPA
Alex Janeck Kruze Consulting
Alex Janeck
VP of Revenue
Pequity

Scale Remote Operations & Team


"Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located"
Zack Fisch

Zack Fisch

Head of Operations & Legal

Clients who have worked with Kruze have collectively raised over $15 billion in VC funding.

We set startups up for fundrising success, and know how to work with the top VCs.

Vanessa Kruze, CPA Kruze Consulting
Vanessa Kruze, CPA
Founder & CEO
Kruze Logo

Experienced team helping you

Our account management team is staffed by CPAs and accountants who have, on average, 11 years of experience.

Bill Hollowsky, CPA Kruze Consulting
Bill Hollowsky, CPA
VP of Accounting Services
Claudine Vantomme, CPA Kruze Consulting
Claudine Vantomme, CPA
Controller
Morgan Avery Kruze Consulting
Morgan Avery
SUT/R&D Sr. Tax Accountant
Beth Bassler Kruze Consulting
Beth Bassler
Controller, CPA
Protara Therapeutics

Grew from a 2-person startup to a NASDAQ listed public company.


"The Kruze team helped us grow from a 2-person startup to a NASDAQ listed public company in 2 years. We wouldn’t have gotten public without Kruze’s support. Anyone thinking of launching a startup should make Vanessa their first call!"
Jesse Shefferman

Jesse Shefferman

CEO

Kruze Logo

Get in Touch

Please help us connect with you

How can we reach you?

Our first response is typically via email, so please check your inbox.

By clicking Next, you consent to receive automated messages from Kruze Consulting. Reply STOP to opt out. Terms of Service | Privacy Policy.

Help us have a productive first consultation by providing some additional information.

What year was your startup incorporated?

What is your stage of funding?

(pick up from the list)

Approximately how much funding have you raised?

(please enter a dollar value such as 5000000)

Help us understand what you are looking for:

(Optional, click the ones you need)

Anything additional that you’d like to share?

Optional - if you’d like to share anything else to help us prepare for our consultation, please let us know. We are also happy to sign an NDA, just let us know.

Loading search...

Initializing search...

Search

Recent searches: