The terms are a little steep but not outside the ordinary range, especially if they are going to do a fair amount of work to get solicitation docs together.
A tail generally means that any deal done within 6 months of the termination of the engagement, with someone introduced by the broker, means you pay the broker the fee as if the agreement was still in effect.
One last question about the 10% of warrants of equity capital raised (with a 10-year maturity). According to my calculations and based on a typical 20-30% of equity granted to the investors, that means the broker wants to be able to acquire 2 to 3% of the company at the same price as the first investors, at any point in time for 10 years (it seems clear to me that the broker expects some liquidation event(s) during those 10 years).
Knowing that an experienced startup CEO gets max 5% of stock options with a 4-year vesting schedule, is it really reasonable to grant the broker 2-3% when he was only involved in a one-time funding round?
Thanks Daniel and Scott, I definitely appreciate your feedback and advice, and will pass them along to the people who asked me to review this term sheet.
Thank you much for confirming my assumptions, as well as for providing more realistic rate ranges. This is definitely going to be useful for the people I try to help (and for me as I educate myself in term sheet/VC lingo).
As a matter of fact, I've just found an interesting blog post about the financial mechanics at play: http://www.axial.net/blog/how-to-use-warrants-to-pay-investment-banking-fees/ . They mention a 10% success fee split 5/5 in cash/warrants. With the same perspective, that means the actual broker's fee in my case is 17%...