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Introduction to Term Sheets

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A Lunch and Learn Session delivered by MLA Member Rob Koturbash on Term Sheets in Angel Investing.

A Lunch and Learn Session delivered by MLA Member Rob Koturbash on Term Sheets in Angel Investing.

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  • 1. A n I n t r o d u c t i o n t o Te r m S h e e t s With Rob Koturbash www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 2. Term Sheets – an Introduction • A term sheet is the basis of a legal agreement between an investor(s) and a company, outlining the terms and conditions of an investment into the target company. www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 3. Goals • Hope for the best but plan for the worst • Protect downside risk while maximizing upside potential • Forms the basis of a legal document • Aligns interests of founders with interests of investors • Establishes corporate governance www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 4. Critical Items • • • • • What do you want the deal to look like? Type of security to be issued Valuation and amount to be invested Voting and information rights Board establishment and representation www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 5. Types of Investment • Equity – Common – Preferred • Debt – Straight – Convertible • Angel investments capture upside reward, therefore Equity or Convert Debt are instruments used www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 6. Seed Preferred Structure • Allows upside value capture • Introduces set of rights available only to investors – Anti dilution – Investor board seats – Information rights – Redemption rights – Rights related to future investment rounds www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 7. Aligning Interests between Investors and Founders • Identify key value drivers in the investment – – – – Product launch IP strategy Strategic partnerships Sales targets • Focus on two or three key metrics • Upon value creation event, management can claw back a portion of equity if they have demonstrated superior execution – Warrant structure www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 8. Corporate Governance • Goal is to achieve a balanced board from the start • 5 person board minimum – 3 person boards do not work • Expandable easily to 7 – Current CEO – Founder representative – 2 Investor representatives – Independent www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels
  • 9. C O N TA C T R o b Ko t u r b a s h r ko t u r b a s h @ m a p l e l e a fa n g e l s . c o m www.mapleleafangels.com | info@mapleleafangels.com | 416.646.6235 | @mapleleafangels