In the early stages of your startup journey, you will begin to realise the importance of pre - arranged agreements that solidify the relationship between investors and your founding team. Terms established early on are protective to both companies and investors from unwanted legal consequences (during and after investment).
When showcasing your opportunity to an array of investors, there will no doubt be some work to do in bringing them from a stage of ‘interest’ to ‘commitment’. A clear outline of the intended characteristics of the formal agreement to be signed can go a long way in lifting the confidence of your potential investors - enough to commit fully, hence the need for a term sheet.
Remember - this is a non - binding agreement, acting more so as a glimpse into the near future to avoid misunderstandings, potential confusion but also to consolidate the interest of investors.
Thanks to our partners at LawPath, we’ve received the ideal checklist to curating a term sheet ;
Company Details (Name & ACN)
Investor Details (Name & ACN (if company))
Investment Amount for Percentage Equity of the Fully Diluted Capital of the Company
Investment Amount for Percentage Capital of the Fully Diluted Capital of the Company
(Fully Diluted Capital means the share capital of the Company computed on an As Converted Basis, and on a basis deeming all Options and any other subsisting options granted by the Company to subscribe for any shares (of whatever class) or other instrument convertible into shares, to have been exercised (and, if appropriate, subsequently converted) in full)
Shares on Offer ; conversion option, class of converted share, dividend option
Current Valuation of Company
% of Shares Available in an Employee Share Scheme
Shares Currently Appointed to Board of Directors
Exclusivity Period for Transaction
(An exclusivity period is a length of time (usually 30 to 60 days) during which a seller is prohibited from carrying out or furthering activities that relate to the sale of a firm with parties other than the prospective buyer with whom they have signed a letter of intent.)
Maximum Cost Company will Bear for preparation of proposed transaction
(Budget of company incurred costs allocated to due diligence activities (requested by prospective investors).)
Although this may not be a necessity for early stage companies, it is an excellent way to alleviate the confidence levels of potential investors who are perhaps stuck between a verbal commitment and signing a binding agreement.
For more information on startup friendly legal solutions, LawPath is the preferred partner of CRIISP and all CRIISP members will have access to 3 months of legal solutions - free, click here for more information.