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: (Jason) 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 prior post.
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.