Term Sheet basics – Levers of valuation :
- Pre-money valuation (Related posts: one , two )
- Investment Size
- Price per share
- Option pool creation (Related post: one )
- Liquidation Preference (Related posts: one , two )
- Dividends (Related post: one )
- Type of preferred stock: Convertible vs. Participating (Related post: one , two )
- Anti Dilution
Pay-to-Play will affect investors that don’t participate in future rounds, so it is included along with the valuation terms. Additionally, closing conditions (or conditions precedent to financing) can have multiple requirements affecting valuation so it is included in this section.
For founders, vesting is an important subject but not always understood with regards to acceleration (single or double trigger).
Here is a good post by Fred Wilson on lead investors.
A No Shop Agreement will appear in the later part of the process.
Term Sheets – Governance/Control
- How a Board of Directors is selected
- Protective Provisions
- Simplifying voting with Drag Along
- Founders activities
Term Sheets – Preferred Stock Rights
- Redemption Rights
- Information and Registration rights
- Right of first refusal
- Voting rights
- Restriction on sales, proprietary inventions, and co-sale agreements
- Initial Public Offering Shares Purchase
- Indemnification and Assignment
Example Term Sheets and Equity Financing Docs
Two sets of documents are included, and are a great complement to all of the material above.