Key elements of a Terms Sheet Valuation Liquidation preference Anti-dilution protection Dividends / Redemption rights Board Composition / Governance Participation rights Redemption rights Protective provisions No shop / NDA / Confidentiality 9/17/2009 New Enterprise Forum 2
Overview 9/17/2009 New Enterprise Forum 3 What is a “terms sheet”: What every early stage company dreams of A culmination of a 6 - 9 month investor due-diligence process A 10-12 page document with proposed investment terms It is not an LOI (letter of intent) Key Concerns for company: Control Valuation & Dilution of ownership Value- add Key Concerns for investors: Risk, risk, risk…Return Management Team Governance: When things go wrong….
Corporate Structure 10/15/2009 New Enterprise Forum 4 LLC C – Corp S – Corp State of Incorporation
Investors 10/15/2009 New Enterprise Forum 5 Type Individual (Angel) LLC (Group of individuals) VC Firm
Class of Stock 10/15/2009 New Enterprise Forum 6 Series A Preferred Series B Preferred Common Stock Warrants Options
Amount Raised 10/15/2009 New Enterprise Forum 7 Pre-Money – What is the company worth today (Based on realistic projections) Including $__ from the conversion of principal and interest on bridge notes? How will you clean up debt? Investment can be structured as a staged pay-in (tranches), with subsequent installments to be invested if the Company has met certain milestones. Plan ahead for future rounds.
Capitalization 10/15/2009 New Enterprise Forum 8 Price Per Share Pre-Money Valuation Company’s capital structure before and after Closing
Liquidation Preference 10/15/2009 New Enterprise Forum 9 First pay Original Purchase Price plus dividends and/or a multiple of original price on each share of Series A Preferred Stock. Balance of any proceeds shall be distributed to holders of Common Stock. Participating vs. Non-participating preferred Mandatory Conversion automatically occurs in the event of IPO at price X times Original Purchase price Written consent of holder of __% of Preferred
Dividends 10/15/2009 New Enterprise Forum 10 Non-cumulative dividends on Series A Preferred Rate ___% When and if declared by the Board
Anti-dilution Provisions 10/15/2009 New Enterprise Forum 11 In the event Company issues securities at a price less than the current Preferred price, such price shall be adjusted in accordance with an agreed to formula Weighted average Full-ratchet No price-based anti-dilution adjustment
Term Sheet October 15, 2009 www.newenterpriseforum.org