Introduction to Term Sheets

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A n I n t r o d u c ti o n t o T e r m S h e e t sW i t h R o b K o t u r b a s h


• 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.

Term Sheets – an Introduction


• 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

Goals


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


Types of Investment

• Equity– Common– Preferred

• Debt– Straight– Convertible

• Angel investments capture upside reward, therefore Equity or Convert Debt are instruments used


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


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


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

C O N T A C TR o b K o t u r b a s h

r k o t u r b a s h @ m a p l e l e a f a n g e l s . c o m


Investor Relations

Introduction to Term Sheets