Startup Term Sheet templates
What is a term sheet?
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 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.
Term Sheet Negotiation
Term sheets are usually centered around 2 things:
- Control of the company
- What cash is received in the event of an exit
It’s important that as an entrepreneur, you go into a term sheet negotiation as knowledgeable as possible in order to get the best terms possible. 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.
Key Terms of a Startup Term Sheet Template:
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. (%) This aspect really affects who owns what, and how much money each shareholder will earn when the business is sold.
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.
Anti-dilution: This is a feature of preferred stock and basically acts as protection from investors from getting massively diluted in a ‘down round.’
Where can I find Startup Term Sheet Templates?
You can find a number of Startup Term Sheet Templates built by Industry professionals, entrepreneurs, Venture Capital Associations and Investors here on Eloquens below. They are downloadable as PDF or Word Templates and some step by step methodologies to help you better understand a Term Sheet.
For more on Key Terms see:
- Guidance for founders negotiating Series A funding.15 remove_red_eyeLike!
VC Venture Capital Term Sheet Template - NVCA ModelA Series A Preferred Stock VC Term Sheet Template13 remove_red_eyeLike!freeby NVCA
Term Sheet TemplateTerm Sheet made by Series Seed outlining basic terms and conditions of an investment.New!Like!
Explanatory Brochure on the Anatomy of a Term SheetExplanatory brochure designed to help entrepreneurs understand and evaluate early-stage equity financing term sheets.New!Like!
Term Sheet TemplateA Simple Term Sheet Template by Gunderson Dettmer Law FirmNew!Like!
How to Fully Understand a VC Term SheetFull descriptions of each aspect that makes up a VC term sheet.New!Like!freeby Brad Feld
Term Sheet TemplateTerm Sheet Template for a Series A RoundNew!Like!freeby BVCA
Annotated Series Seed Term SheetAnnotated Series Seed Term Sheet TemplateNew!Like!freeby Gust
Seed Summit Term Sheets (Multiple)General & Angel Term Sheet Templates given for 9 countries adapted specifically for each country.New!Like!freeby Seed Summit
Openfund Term sheet TemplateTerm Sheet template for pre-seed and seed financing.New!Like!
Term Sheet TemplateTermsheet Template for the Issue of Ordinary SharesNew!Like!freeby EBAN
Founder-Friendly Term Sheet TemplateStraightforward term sheet template with terms reflecting what a founder is generally more attracted by.New!Like!freeby Sam Altman
Common Shares Term SheetCommon Shares Term Sheet Template with accompanying notes to help understanding.New!Like!
Preferred Shares Term SheetA Preferred Term Sheet Template complimented with Educational Notes to help you.New!Like!
Convertible Loan Term SheetConvertible Loan Template with complimentary Educational Notes to help you.New!Like!
Canadian Safe Term SheetCanadian Simple Agreement for Future Equity Template with Educational Notes attached to help you.New!Like!
Friends and Family Guidance on NACO Term SheetsCase Study and Guidance concerning Friends & Family investments.New!Like!
The Plain Preferred Term SheetSimplified term sheet leaving out terms adding to complexity whilst aligning the incentives of founders and investors.New!Like!
Seed Enterprise Investment Scheme (SEIS) Model Term SheetA user friendly term sheet that is tailored for raising equity investments that qualify for tax reliefNew!Like!freeby Johnathan Lea
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