This document provides an overview of investment term sheets, including: - A term sheet is a non-binding agreement that outlines the basic terms and conditions for an investment, and serves as a template for more detailed legal documents. - It balances the interests of entrepreneurs/inventors and investors by answering key questions around investment growth, roles, rights, and exit provisions. - Once agreed, a binding contract is drawn up conforming to the term sheet details around items like valuation, investment amount, stake percentage, and provisions.

1. Investment Term Sheets
An overview

2. • A non-binding agreement setting forth the basic terms and conditions
under which an investment will be made.
• A term sheet serves as a template to develop more detailed legal
documents.
• Once the parties involved reach an agreement on the details laid out in
the term sheet, a binding agreement or contract that conforms to the term
sheet details is then drawn up.
E.g. A term sheet from a venture capital company that is investing in an
early-stage company may contain such details as the amount of
investment, the percentage stake sought, anti-dilutive provisions and
valuation.
The Term Sheet Chronicles

3. Term Sheet Strikes a Balance Between Complimentary
and Conflicting interests of:
Entrepreneur/Inventor/Developer
Vs.
Investor
Term Sheets answer the glaring questions.
• How will my Investment/Idea grow?
• Is this Consistent?
• Are we leaving innovation on the table?
• Lets talk long term ?
• Is this the right Market/Strategy ?
• Where will my IP rights vest ?
• Money Vs. Dream ?
• My Role ?
• What if I don’t want to do it anymore ?

4. What Investors Do
• Invest money - picking winners
• Provide contacts - knowing the right
people
• Consult
– technical and strategic advice
– push to make difficult decisions
– encouragement
What Entrepreneurs Do
• Amalgamate the Resources and Idea together
• Provide expertise and technical Know how
• Build strategy
• Make the structure work

5. • Opportunity Analysis
• Fit Analysis
• Preliminary due diligence
• Risk assessment
• Development Planning Analysis
• Valuation
• Structure
• Entrepreneurs Needs
• Opportunities Needs
• Firm’s Needs
• Identification and evaluation
of Assumptions
• Verification of Facts
• Interviews
• Customers
• Competitors
• Experts
Agreement
• Documentation
• Reps and Warranties
• Expediting
• Overcoming Problems
Term Sheet
Lines up incentives of entrepreneur and investor to provide compulsion to grow rapidly.

6. Investor Vantage Point
•Binding vs. non-binding or selectively binding
•Anti-dilution, Pre-emptive Rights
•Voting Rights (Affirmative vs. veto)
•Board representation (director and observer)
•Dividends (Assured Return)
•Conversion
•Exit (IPO & Buy Back Provision, Drag along)
•Time commitment
•Protective Provisions

7. • Information Rights
•Transfer Restrictions
•Right of First Refusal, Right of first Offer
•Co–Sale/Tag Along
•Investor Support
• Business Plan and use of proceeds
•Exclusivity/No Shop
•Rights, Preferences, Privileges, and Restrictions of Equity Stock

8. Entrepreneur Vantage Point
• Window of Opportunity
• Leverage
• Pre-money valuation
• Liquidation preference
• Option pool
• Milestone or tranched closings
• Price protection
• Board composition
• Founder vesting

9. • Due diligence and Closing Conditions
•Drag-along and tag-along rights
• IP Rights
• Future Role, further finance (pledge/guarantee)
• Strategic imperatives and Financial return imperatives
•Exit of investor / extinguishment of rights
•Costs and taxes

10. Legal Considerations
1. House Keeping (to reduce CP’s)
2. Types of securities/shares
3. Restriction on transfer, ROFR, ROFO, Tag, options
4. Dividend payment, assured return and waterfall provisions
5. Valuation on investment and exit
6. FDI Policy and related structuring
7. Board representation, meetings, decision making, deadlock
8. Exit provisions (IPO, Buy Back, Drag along, valuation)
9. Tax implications on issue of securities and on exit
10. Stamp duty and registration
11. IP protection
12. Indemnities and warranties
13. Termination (tag/drag), extinguishment of rights and
survival
14. Dispute resolution
15. Cost and taxes

11. Alpha Partners
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