Series a term sheet template

Series a term sheet template

A Term Sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up. A Startup Term Sheet is drawn up before the rest of the legal financing documents to state the basics terms and conditions of the forthcoming investment to be made.

A Term Sheet is non-binding, and is not a legal promise from the potential investor to invest. It does not guarantee money coming in.

It serves more as a template from which more detailed legal documents are developed. Once both investor and founders have reached an agreement on what has been stated in the term sheet, a legally binding contract can be drawn up that conforms to the terms and conditions stated in the term sheet.

They usually consist of three parts: funding, corporate governance, and liquidation.

A Complete Beginner’s Guide to VC Term Sheets

Investors are generally going to know their stuff, and will obviously try to come to an agreement that gives them the best possible deal, so you have to know what is going to work best for you too.

A lack of knowledge will put you at a real disadvantage, and you are in danger of experiencing information asymmetry. Valuation: This is one of the most important terms in a term sheet. This, alongside how much money is being invested, will determine how much of the company the investor will own. Option Pool: The majority of term sheets will impose the creation of an option pool so that shares can be set aside for hires in the future.

Liquidation Preference: This is the name given to downside protection for preferred stock. Participation Rights: These allow preferred stockholders to get dividends before common stockholders. Dividends: These are given as a percentage and are used to give back more return that builds up over time to preferred stockholders.

View all Eloqoons. Why do I need to sign up with LinkedIn? What is a Startup Term Sheet? Most popular Templates. Explanatory Brochure on the Anatomy of a Term Sheet Explanatory brochure designed to help entrepreneurs understand and evaluate early-stage equity financing term sheets. Openfund Term sheet Template Term Sheet template for pre-seed and seed financing.

series a term sheet template

Founder-Friendly Term Sheet Template Straightforward term sheet template with terms reflecting what a founder is generally more attracted by.There are two documents available: the General version and the Angel investment version variant which should be practical both for entrepreneurs to get acquainted with typically used standard terms, and for investors and other players in the ecosystem to utilise for fast, fair, transparent and affordable funding rounds.

While the documents provide many of the terms that are typically found within financing rounds, the eventual users of these documents ultimately decide which terms to include or not include. The documents are meant to serve a common goal for the community: making seed funding easier to access, better to understand, and fair for all parties. We are looking forward to them being used, adapted, and spread.

Likewise, please keep us up to date on what you think about them, when you use them and how they helped you take your companies forward. The first document is the General Seedsummit termsheet, typical for institutional investors. Usage Notes and Previous Versions [Items between brackets within the documents are optional and are there to provide transparency on available options].

The UK termsheets are version 3 of the original drafts. For version 1 and more information about the changes from v1 to v2, click here. As with all the Seedsummit documents, the Termsheets are meant to help the startup community grow by their use, adaptation, sharing and, with your comments and experiences, improvement. So please be in touch with your comments on the documents and how you have found them useful. Versions Find out more about Termsheet Change Log — v1 versus v2. Seedsummit Making investors more discoverable.

Termsheets There are two documents available: the General version and the Angel investment version variant which should be practical both for entrepreneurs to get acquainted with typically used standard terms, and for investors and other players in the ecosystem to utilise for fast, fair, transparent and affordable funding rounds. Types and Jurisdictions The first document is the General Seedsummit termsheet, typical for institutional investors.

Usage Notes and Previous Versions [Items between brackets within the documents are optional and are there to provide transparency on available options] The UK termsheets are version 3 of the original drafts. Return to top of page.What you really need to know is which terms are most important, how they affect you, and how to negotiate them.

Only then will you be able to look at a term sheet and make smart cap table decisions. A term sheet is like a marriage between your company and your investors, but with a lot less romance or open-ended trust. It dictates who gets what financially, and who gets to do what legally, in almost every scenario.

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These terms will describe things like the agreed upon valuation of the company, the price per share for the investment, the economic rights of the new shares and so forth. Generally, a term sheet itself is not legally binding. Its main purpose is to serve as a blueprint for the formal legal documents that will be drafted by lawyers. However, you usually agree to confidentiality and a promise not to enter into negotiations with other investors at the same time.

If you want to learn more about convertible debt and the like, read our post that covers everything you need to know about convertible debt. It can be a make-or-break deal for startup founders. Knowing where to negotiate and what to negotiate for is critical, because not all terms are equally important. You want to focus on the components that really matter. And once you successfully negotiate the key terms, the incremental benefit of negotiating other terms diminishes pretty quickly.

A lack of term sheet knowledge puts you at a serious disadvantage. Academics would call this information asymmetry. In the Darwinian world of startups, only the smartest and most savvy entrepreneurs generally survive.

Nearly all VCs work hard to maintain positive, long-term relationships with entrepreneurs. But would a rational investor negotiate against themselves?

series a term sheet template

They will act rationally in their best interest. VCs are in the business of making deals, so of course they know all the ins and outs. Also keep in mind the interpersonal nature of term sheet negotiation.

Some entrepreneurs make self-destructive mistakes by ignoring important social and interpersonal dynamics involved with accepting a term sheet.

Venture capital is a small world, so avoid burning bridges. This is one of the most crucial components of the term sheet, because it has the most direct impact on who owns what and how much cash each shareholder receives when the company sells.

Valuation is expressed in terms of pre-money and post-money values. The post-money is simply equal to the pre-money valuation plus the amount of the new investment. Read here for a more in-depth explanation.

Valuation is arguably the most important component of the term sheet.

Safe Financing Documents

A poor valuation can ruin a deal even if all other terms are in your favor. They naively assume that a great valuation equates to a great term sheet. Never make that assumption. VCs can extract more value than the valuation would imply, so the best deal may not always be the one with the richest valuation. Plus, you set a bar for yourself with every future term sheet valuation. So approach valuation mindfully. This means playing your hand as an entrepreneur who wants to create win-win outcomes for both VCs and founders.

Entrepreneurs who approach valuation with a level head are more likely to gain a good reputation in the venture community and build strong relationships with investors. If you want to play the game more than once, you have to be a smart negotiator.This Memorandum of Terms does not constitute an offer to sell or a solicitation of an offer to buy securities in any state where the offer or sale is not permitted.

Key Legal Documents for a Series A Financing Round

Any dividends in excess of the preference will be paid to the common stock. The conversion rate will initially besubject to anti-dilution and other customary adjustments. The Preferred will vote with the common stock on all matters except as specifically provided herein or as otherwise required by law. The holders of common stock will be entitled to elect [two] director[s]. The remaining director s will be elected by the holders of Preferred and common stock voting together. The information rights will terminate upon an initial public offering.

Registrable securities. Demand registration. The Company will have the right to delay such registration under certain circumstances for [up to] [two] period[s] of up to [90] days [each] in any twelve month period.

In the event of such marketing limitations, each holder of Registrable Securities will have the right to include shares on a pro rata basis as among all such holders and to include shares in preference to any other holders of common stock. S-3 rights. Subject to customary exceptions, the Company will bear the registration expenses exclusive of underwriting discounts and commissions of all demand, piggyback and S-3 registrations, provided that the Company will not be required to pay the fees of more than one counsel to all holders of Registrable Securities.

Market stand-off.

Key Issues in VC Term Sheets: Valuation

Other provisions. The Investor Rights Agreement will contain such other provisions with respect to registration rights as are customary, including with respect to indemnification, underwriting arrangements and restrictions on the grant of future registration rights. If the Company does not exercise its right of first refusal, holders of Preferred will have a right of first refusal on a pro rata basis among holders of Preferred with respect to the proposed transfer.

To the extent the rights of first refusal are not exercised, the holders of Preferred will have the right to participate in the proposed transfer on a pro rata basis as among the transferee and the holders of Preferred. The rights of first refusal and co-sale rights will be subject to customary exceptions and will terminate on an initial public offering.

This right will terminate upon a Qualified Public Offering. The Company will have the right, upon termination of services, to repurchase any unvested shares. This Memorandum of Terms may be executed in counterparts, which together will constitute one document. Facsimile signatures shall have the same legal effect as original signatures.

Registration rights: Registrable securities. Signature page follows This Memorandum of Terms may be executed in counterparts, which together will constitute one document.Liquidation preference is simply the order in which stakeholders are paid out in case of a company liquidation e.

Liquidation preference is important to your investors because it gives some security well, as much security as there is at the Series A to the risk of their investment. If you see more than 1x, which means the investor would get back more than they first invested, that should raise a red flag. In the eyes of an early stage investor, dividends are not a main point of focus.

There are 2 types of dividends; cumulative and non-cumulative. Common practice will automatically convert preferred stock into common stock in the case of an IPO or acquisition. Generally, Series A investors will have the right to convert their preferred stock to common stock at any time. On a Series A term sheet, the voting rights simply states the voting rights of the investor.

series a term sheet template

Generally, your Series A investors will likely receive the same number of votes as the number of common shares they could convert to at any given time. In the Y Combinator example, as with most term sheets, this section can include some technical jargon that is not easy to understand.

The most important vetoes that a Series A investor usually receives is the veto of financing and the veto of a sale of the company. One of the more important sections when navigating your Series A term sheet is the board structure. Ultimately, the board structure designates who has control of the board and the company.

How your Series A investors want to structure the board should be a sign of how they perceive you and your company. A scenario in which 2 seats are given to the common majority e.

This allows founders to maintain control of their company. On the flip side, there is a structure 2 founders, 2 investors, 1 outside member. In this scenario, it is possible for the founders to lose control of the company. While a common structure, be sure that the board structure is in line with conversations while fundraising.

Complementary base pairing practice

You can learn more about drag along clauses in this post, Demystifying the VC term sheet: Drag-along provisions. Always be sure to consult with your lawyer before signing your term sheet.Outline the key financial terms and other terms of a proposed investment using this term sheet.

Investors use a term sheet as a basis for drafting the investment documents. With the exception of certain clauses, commonly those dealing with confidentiality, exclusivity and sometimes costs, the term sheet is not intended to be legally binding. It is crucial that the founders of a company understand what they're signing up to beyond just the valuation and investment amount, as they will have to live with these terms and in certain cases, convince their fellow shareholders to accept them also.

It outlines the main terms and conditions of the investment deal, and guides the preparation of the final agreement.

series a term sheet template

By setting out the terms of the future agreement, the term sheet reduces the likelihood of disputes further down the line. A seed investment is an early stage investment, that usually funds the first operations of a business, such as research and development.

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It's the invested capital that supports the business until it can generate cash, or until it is ready for further investment. Seed investment is quite high risk, so this type of funding is often compensated with the investor obtaining equity stake in the business. The lead investor is the investor that contributes to the most significant portion of the investment. They play an important part in the development of a business, for it is usually they who sign the term sheet and engage in the seed investment.

Lead investors can be family members or friends of the business founder, high net individuals ie angel investors or venture capital investors. Find trusted documents for hundreds of purposes. Create as many legal documents as you want, ask legal questions, and get advice from On Call Lawyers. It's easy to cancel at any time. Your documents are stored securely online so you can access them from any device when you need to.

Our documents are created and reviewed by lawyers and legal professionals, so you can be confident when creating your next contract. Dashboard Make a document Ask a lawyer Get guidance Home. Profile information Account settings.

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Make documents Ask a lawyer Get guidance About us. When should I use a term sheet? Use this term sheet when you are looking to make a seed investment in a business.Annually, the venture industry closes several thousand financing rounds, each consuming considerable time and effort on the part of investors, management teams and attorneys.

In an all-too-typical situation, the attorneys start with documents from a recent financing, iterate back and forth to get the documents to conform to their joint perspective on appropriate language reflecting the specifics of the deal and general industry best practicesand all parties review numerous black-lined revisions, hoping to avoid missing important issues as the documents slowly progress to their final form. By providing an industry-embraced set of model documents that can be used in venture capital financings the time and cost of financings are greatly reduced and therefore principals time is freed from reviewing hundreds of pages of unfamiliar documents, thereby allowing parties to focus on high-level issues trade-offs of the deal at hand.

In general, these documents are intended to reflect current practices and customs, and we have attempted to note where various regions differ in a number of their practices. We have generally tried to indicate such issues with a footnote and explanatory language. The General Counsel Advisory Board will continue to touch base approximately once a year to determine whether any changes need to be made to the documents, including in light of any recent legal developments or actual experience using the documents in deals.

Users of the documents are encouraged to send any comments or suggestions to Jeff Farrah by emailing jfarrah nvca. We respect your privacy and take protecting it seriously. Learn more in our Privacy Policy. Phone: Model Legal Documents. Voting Agreement.

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