Anatomy of a Term Sheet: Index
Index to entries in our Anatomy of a Term Sheet series
Anatomy of a Term Sheet: Key Takeaways and Other Resources
In our very first post we said that our purpose in undertaking this Anatomy of a Term Sheet series was to give our readers the ability to better evaluate financing term sheets. We sincerely hope we’ve been able to shed at least a little light on the subject and we welcome your questions on any topic that is still a mystery.
Anatomy of a Term Sheet: No Shop and Confidentiality
Way back in the second post of this series, we noted that the No Shop/Confidentiality provision is one of the two provisions in the term sheet that is usually “binding” on the company and the investors – meaning it is enforceable even if the rest of the contemplated financing is never completed.
Anatomy of a Term Sheet: Vesting of Founders’ Stock
Investors often want at least a portion of the stock owned by each founder of a company to be subject to vesting and a corresponding company buyback right if the founder ceases to be employed by the company within a certain period of time after a financing.
Anatomy of a Term Sheet: Drag Along
A Drag Along provision compels a group of stockholders to vote in favor of a transaction approved by another group of stockholders and/or the company’s Board of Directors.
Anatomy of a Term Sheet: Election of the Board of Directors
The Board plays a pivotal role in the management of a company because it overseas the company’s officers (and has the power to replace them) and because Board approval is required for many corporate actions, including any action that materially impacts the corporation’s business. Not surprisingly, then, the composition of a company’s Board can be a contentious point of negotiation in a financing.
Anatomy of a Term Sheet: Right of First Refusal, Right of Co-Sale and Lock-Up
The rights and restrictions set forth in the Right of First Refusal and Co-Sale Agreement are the Right of First Refusal and Right of Co-Sale, both of which apply to any proposed sale of stock by stockholders prior to the company’s initial public offering, and the Lock-up, which applies to sales by the common stockholders following the company’s initial public offering.
Anatomy of a Term Sheet: Misc. Investor Protective Provisions
We finish up our discussion of the Investor Rights Agreement with a quick overview of several provisions, which typically are not the subject of much negotiation.
Anatomy of a Term Sheet: Right to Maintain Proportionate Ownership (a/k/a Preemptive Rights)
The “Right to Maintain Proportionate Ownership” is more commonly referred to as “Preemptive Rights” or the “Right of First Offer.” Preemptive Rights give investors the first right to purchase shares offered for sale by the corporation in the future, subject to a few exceptions.
Anatomy of a Term Sheet: Management Rights and Investor Director Approval
Management and Information Rights serve to ensure that even those investors who will not have the right to appoint a member of the Company’s Board of Directors are able to obtain certain information about the operation and finances of the company.