Did you know that 75 % of negotiation success comes from being prepared? That's why we're here to help you understand important legal terms for startups. Last time, we talked about the cap table. Today, let's explore the term sheet, a vital document that kicks off investment negotiations.
What's a term sheet?
A term sheet is a crucial document for investment deals. It outlines the basic investment conditions but isn't legally binding. It serves as a blueprint for legal documentation and sets the tone for the investor-founder relationship.
Here are the main categories you'll find in a term sheet:
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What does a term sheet look like?
To get a better idea of what a term sheet looks like, check out this example:
Why does this matter?
A term sheet is important for both investors and founders. It provides a clear overview of the investment deal, allowing everyone to evaluate its potential. Remember, a well-crafted term sheet sets the stage for a successful investment.
Dos and don'ts
Here are the top tips and mistakes to avoid we learned from years of experience.
Use standard documents
Create ESOP pool
Understand legal terms
Lead the negotiations
Choose a compatible investor partner
Neglect veto rights
Give away too much equity
Let investors block future rounds
Accept participating liquidation preference
Accept reverse vesting
That's all for today! If you need assistance with your term sheet or have any questions, don't hesitate to reach out to us. Follow us on LinkedIn to stay tuned for our next newsletter!
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