This document discusses fundraising term sheets for startups. It begins by defining what a startup is and noting that they come in different industries and funding stages. It then discusses some particularities of investing in startups, such as specialized jargon, risk profiles, and business models. The document outlines some common pre-investment advice and the top 10 most common mistakes made in fundraising. These include legal/financial illiteracy, poorly structured deals, over-dilution of founders, and more. Key takeaways encourage founders to do research, choose investors carefully, retain advisors, understand legal paperwork and investor perspectives, and prepare for a long-term relationship. Resources for further learning are also provided.

17. FUNDRAISING AND TERM SHEETS
04.12.2018

18. INTRODUCTION
WHAT IS A STARTUP?
- Untested business model (binary)
- Scalability and global markets
(technology)
- Negative cash flows or losing
cash (cash burn/burn rate)
- Only able to be financed through
capital (equity - venture capital)
ARE THEY ALL THE SAME?
- Software / marketplaces /
hardware / biotech / medtech /
fintech
- Seed and Series A/B/+
(impact of the first rounds on
the subsequent)
INVESTING IN STARTUPS
Many particularities [some less
evident than others]
- jargon
- risk profile
- business model
- annual funding needs

19. PRE-INVESTMENT ADVICE
• Companies and limited liability
– Liabilities/debts – careful with tax, social security and labour matters
– Terms of contracts (as short as possible)
– Types of companies
– Low share capital
• Founders’Agreements
• IP Assignment Agreements
• NDAs
• Regulated activities

20. THE 10 MOST COMMON MISTAKES
Legal and financial illiteracy of the founders
Lack of sophistication of the investors (business angels, family offices, funds and
corporate venture capitalists)
Badly structured initial rounds kill start-ups (ex: hybrid rounds and convertibles)
Founders’ over-dilution (examples of percentages/intervals)
Absence of reverse vesting (founders’ agreements)
1
2
3
4
5

21. THE 10 MOST COMMON MISTAKES
Over-aggressive liquidation preferences
Pre-money valuation myopia
Underestimating the time to fundraise for priced and non-priced rounds (2 to 6
months)
Public limited company vs limited liability company
Excessive share capital / thin capitalization rules
6
7
8
9
10

22. KEY TAKE-AWAYS
• Do your homework and know the game: research before and choose the investors carefully
(sophisticated investors tend to keep things simple);
• It is time-consuming and may be overwhelming (the term sheet is only the beginning) so consider
your options (equity round or convertible note)
• Retain decent advisors early on
• You cannot ignore the legal paperwork as annoying and frustrating it may be: there are a few
provisions which are really damaging, especially at exit (Reid Hoffman’s advice) so retain a good
lawyer early on (not your cousin…) with experience in start-ups (lawyers close more transactions
than anyone in the room) – Mark Suster’s advice
• You will not love the deal (hopefully nor will the investor – that is a good sign)
• Investors want to control and to monitor – live with it because it’s reasonable
• It’s a long-term relationship so treat them well
• Understand their business as you expect them to understand yours (always look through their
perspective)

23. FOOD FOR THOUGHT
Videos and
MOOCs
*Venture Deals
Legal startup questions:
video
Startup Basics (WSGR)
Blogs and
guides
*Seed Summit (angel
round term sheet):
http://seedsummit.org/
VC Experts
Books
*The Entrepreneur's
Guide to Business Law
The Entrepreneur's
Guide to Biotech Start-
up (available for free
online)

24. FOOD FOR THOUGHT
• What is normal (here and here)?
• Three to four rounds of equity capital
• 20-25% of the company to recruit and retain a management team.
• Founder/Founder team with 10-20% of the business when it’s all said and done
• The equity split will typically be: 20-25% for the management team, 20% for
the founders, and 55-60% for the investors (angel all the way to late stage VC).
• See more information here
• A guide to seed fundraising (here) and some metrics (here)
• Incentive plans (stock option plans) (here and here)

25. Luís Roquette Geraldes: lrgeraldes@mlgts.pt