Venture Capital Term Sheets
A venture capitalist, once comfortable with the company and its plans, submits a term sheet—a summary of the proposed terms and conditions for a proposed investment. Normally, the term sheet isn't binding. The term sheet is a serious show of interest by the venture capitalist and typically covers:
- The proposed valuation that the venture capitalist places on the company
- How much the venture capitalist proposes to invest in the company and for what percentage ownership in the company
- The form of investment
- The rights to participate on the company's board
- The rights to register the venture capitalist's share in a public offering
- The conditions to the investment (completion of due diligence, definitive agreements in form satisfactory to the venture capitalist, and so on)
- How the money is to be used
- The specific rights attributable to the security to be purchased (typically preferred stock)
At this stage, the company can typically negotiate some of the key terms. You need a good lawyer to help with the intricacies of this negotiation. Find one who is an expert in venture financings.
Click here to view a sample Short Form Venture Capital Term Sheet, or here to view a sample Long Form Venture Capital Term Sheet. With careful review of these forms, you can see the rights that the venture capitalist typically expects.
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