A term sheet is a document that outlines the basic terms and conditions of a proposed investment in a startup or early-stage company. It is a non-binding agreement that lays out the key aspects of the investment deal, including the amount of funding, the valuation of the company, the ownership percentage that the investor will receive, and any other terms or conditions that may apply.
Term Sheet -by Dr.V.K Arora
A typical term sheet will include the following sections:
Investment amount: The amount of funding that the investor is willing to provide to the startup.
Valuation: The pre-money valuation of the company, which is used to calculate the investor’s ownership percentage.
Equity: The percentage of equity that the investor will receive in exchange for the investment.
Liquidation preference: The terms of how the investor will be paid in the event of a liquidation or sale of the company.
Board of directors: The composition of the board of directors, including the number of seats and any board observer rights.
Dividends: Any dividends or other payments that the investor may be entitled to.
Protective provisions: Any provisions that protect the investor’s rights or provide certain privileges, such as the right to block certain actions by the company.
Anti-dilution protection: Any provisions that protect the investor from dilution of their ownership percentage in the company.
Warrant coverage: Any warrants or other securities that the investor may receive as part of the investment.
A term sheet is typically used as a basis for negotiating a more detailed and binding investment agreement, such as a stock purchase agreement or a convertible note agreement. While a term sheet is non-binding, it is still an important document that lays out the key terms and conditions of the investment, and serves as a starting point for negotiations between the startup and the investor.
