<aside> đź’ˇ When an investor is interested in funding your business, one of the first things they will ask for is your term sheet. Use this template to create a term sheet that works for your business needs.
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Strictly private and confidential. Not to be disclosed or distributed to third parties.
Notes:
(a) will be issued ordinary shares in the Company and not a separate class of shares; and
(b) where there is more than one Investor they are proposing to invest on materially the same terms and be parties to the same term sheet.
Non-legally binding: This term sheet is indicative only, not exhaustive and not legally binding unless specifically stated within a certain paragraph. It sets out the proposed key terms and conditions upon which the Investor is willing to invest in the Company.
| 1. Issuer: | [Your Company Name] |
|---|---|
| 2. Investor[s]: | [name of all investors] |
| 3. Existing Shareholders of the Company and pre-investment equity stake: | |
| 4. The CoFounders: | |
| 5. Estimated Closing Date: | The investment is intended to be closed by [closing date]. |
| 6. Amount of the Investment: | $[Amount of investment] |
| 7.Post completion issued share capital of the Company: | |
| 8. Company Obligations: | The Company shall carry out (or procure the carrying out) certain key governance matters, including those set out in Part 1 of the Schedule. |
| 9. Investor Consent: | Investor Consent shall be capable of being granted by Investors holding more than 50% of the aggregate number of ordinary shares held by all Investors. |
| 10. Matters requiring Investor Consent: | The Company shall not carry out certain key operational and constitutional matters, including those set out in Part 2 of the Schedule without Investor Consent. The Investors shall not withhold consent unreasonably. |
| 11. The Board: | After Completion, the Board will consist of 2 Directors and [x number] Observers: |
| Directors - [name of all investors] | |
| Observers - [name of all investors] | |
| 12. Board Observer: | The Board Observer(s)’s consent is needed for certain material business decisions, including: (a) Incur capital expenditure exceeding US$[x number]; (b) Appoint an employee or consultant or vary terms where emoluments and/or commissions or bonuses are likely to exceed US$[x number]; (c) Agree any borrowings, loans, advances or credit outside the ordinary course of business; and (d) Enter into or vary any unusual or onerous agreement or any material or major or long-term contract. |
| 13. Pre-emption rights: (New Share Issue) | Any issue of new shares in the Company shall first be issued to all holders of shares pro-rata (according to the number of shares held by each of the legal and beneficial holders). Any such offer shall remain open for at least [x days] (the Pre-Emption Period). To the extent that any holder does not wish to subscribe for his pro-rata amount, then the remaining new shares shall be issued to any other holders wishing to subscribe for additional shares. To the extent that any remaining new shares are not taken up by the existing holders, then the Company shall be free to issue all or some of these shares to any other person at any time during the period of one month after the end of the Pre-Emption Period. |
| 14. Tag Along (Right of Minority Shareholders to Sell with Majority Shareholders) | In the event of a proposed sale of [x number]% or more of the shares of the Company by any shareholders, the selling shareholders shall be required to procure that the purchaser also makes an offer for all of the remaining shares at the same price and on the same terms as the selling shareholders shares are being purchased. |
| 15. Drag Along (Right of Majority Shareholders to Force Minority Shareholders to Sell) | In the event of a proposed sale of [x number]% or more of the shares of the Company by any shareholder(s), the selling shareholder(s) shall be entitled to require all of the remaining minority shareholders (and option holders) to sell their shares to the third party at the same price and on the same terms as the selling shareholder(s) shares are being purchased. |
| 16. Founder Vesting and Leaver Provisions: | The Founders shares shall vest as follows:  [x number]% immediately; and [x number]% in equal quarterly installments over the following twelve months after closing. If any percentage of the shares held by the Founder have 'vested' this means that the Founder will then be entitled to retain those shares even after ceasing to be employed by the Company. He shall only be required to offer to sell the 'unvested' percentage of his shares to the other shareholders on leaving. If the Founder is a Good Leaver, they will be required to offer their shares to the Company and/or the other shareholders at the higher of (i) fair market value and (ii) the price originally paid for the shares. If the Founder is a Bad Leaver, he will be required to offer their shares to the other shareholders at the lower of (i) fair market value and (ii) the nominal value of the shares. Good Leaver – death; long term critical illness, permanent disablement, retirement at normal retirement age (being 65), unfair dismissal (other than for reasons of procedural irregularity) or for any other reason with Investor Consent, such Investor Consent not to be unreasonably withheld. Bad Leaver – any leaver who within [x number] year of completion ceases to be an employee or consultant of the Company by reason of voluntarily resigning or dismissal by the Company due to breach of contract. The Board and an Investor Majority can determine whether any of these provisions shall not apply to the Founder. Upon the Founder ceasing to be an employee or consultant, the voting rights of unvested shares shall be suspended until such shares are transferred in accordance with the articles of association. |
| 17. Deed of Adherence: | All new shareholders shall be required to sign a deed of adherence whereby they consent to be bound by the terms of the Investment Agreement. |
| 18. Options: | The Company may grant one or more options, warrants or similar rights to purchase its Shares at a later date (in each case, an “Option”) to its employees, agents and others as the Board, with Board Observer consent, deems fit and in accordance with the Articles and applicable law, subject to a maximum option pool size of 3% of the post-founding round capitalization of the Company. If at any time the Company proposes to grant one or more Options, the exercise price per Share shall not be less than the then current market price per Share, such market price being determined by dividing the valuation of the Company by the number of Shares in issue immediately prior to the issue of the Option. The valuation of the Company shall be deemed to be the valuation set by the most recent fundraising round prior to the grant of the Option (the “Fundraising Valuation Date”), provided that if there has been an independent valuation of the Company after the Fundraising Valuation Date, then such independent valuation may be used instead. |
| 19. Expiry of Offer: | The Investors are requested to confirm their acceptance of the terms of this proposal within 10 days of the date of this term sheet, failing which this proposal will lapse. |
| 20. Confidentiality: | This paragraph 20 is intended by the parties to be legally binding. The terms of the investment (including any matter contained within this term sheet) shall be strictly confidential to the Investors, the Founder, the Company and the existing shareholders of the Company. |
| 21. Legal Expenses: | This paragraph 21 is intended by the parties to be legally binding. Each of the Angel Investors and the Company shall bear their own costs and expenses incurred in connection with the preparation and negotiation of the Investment Agreement |
| 22. Governing Law and Jurisdiction: | This paragraph 22 is intended by the parties to be legally binding. [State] law and the exclusive jurisdiction of the courts of [State] shall apply. |
| 23. Information Rights | The Lead Investor shall receive normal financial and operational information about the Company. This Term Sheet may be executed in any number of counterparts, which together shall constitute one document. Facsimile signatures shall have the same legal effect as original signatures. |
Company name: [Your Company Name]