A Standard and Clean Series A Term Sheet by Jason Kwon & Aaron Harris

VCs usually have superior knowledge than founders when it comes to term sheets. It’s important that when founders look at a term sheet they can identify standard terms and provisions that address perceived investor risks.

  • How helpful? Scale of 1 to 5

5.

  • Topic Tags

Term sheet,

  • Relevant questions addressed

What should a good term sheet look like?

What term sheet provisions can be good for founders?

What do investors look for in a term sheet?

  • Summary bullet points
  • Founders usually have inferior knowledge than VCs when it comes to term sheets and might not know good from bad, especially in terms of control or structure
  • In an example Series A term sheet, many terms can be negotiated depending on what the parties can leverage, but there are standards for what to expect
  • Deal terms offered by investors highlight the risks they are most worried about
    • Board structure provisions can lead to founders losing control of the big picture and potentially being replaced
    • Investor director’s approval provisions can lead to founders losing operational control of the company
    • Some investors try to address risk by adding conditional provisions that protect their investment and give them a fixed return if triggered
    • Founders should try to steer them away from the latter and negotiate on valuation to address risk, while getting more standard terms
  • The first term sheet sets the model for future term sheets, so it is beneficial to have a clean one that makes things easy and fast
  • Follow-up links

Do Venture Capitalists Always Get Veto Rights On A Company Raising More Money? - https://www.venturedeals.com/do-venture-capitalists-always-get-veto-rights-on-a-company-raising-more-money/