- Source link
Knowing how to navigate the elements of a Term Sheet and knowing what general items to look out for can be extremely helpful in shaping the future of the company.
- How helpful? Scale of 1 to 5
- Topic Tags
VC Fundraising, VC Term Sheet elements,
- Relevant questions addressed
What is outlined in a term sheet?
What elements are the most important ones for a founder? To VC firm?
How to analyze a term sheet after receiving it?
- Summary bullet points
- The term sheet is a nonbinding document outlining the major details of an investment
- It will be extended to a company from an interested investor to whom they have pitched
- The more at stake, the more detailed a term sheet will be to protect both parties
- There are standard elements to a term sheet (e.g. parties involved, valuation, assets involved, ownership and voting rights, contingencies for several scenarios)
- There could be several elements founders should look out for (e.g. debt and convertible terms, request for high level of control, terms on further fundraising, expectations)
- Founders need to carefully analyze term sheets, as venture investors are sophisticated entities seeking high returns.
- The term sheet should favor an agreement positive for both parties.
- Follow-up links
Definition of collateral https://www.investopedia.com/terms/c/collateral.asp
Definition of anti-dilution provisions https://www.investopedia.com/terms/a/anti-dilutionprovision.asp
Rule of thumb on ownership dilution https://blog.ycombinator.com/dilution/