Anatomy of a Term Sheet: Registration Rights
Registration Rights give investors the right to have the company register their shares with the Securities and Exchange Commission, which is a prerequisite to selling shares in the public markets. There are three types of registration rights typically granted to investors.
Anatomy of a Term Sheet: Stock Purchase Agreement
The Stock Purchase Agreement is the contract wherein the investors agree to buy the shares of stock the company is offering to sell. The importance of the SPA, however, lies is in the terms and conditions it places on the financing, which serve primarily to protect the investors.
Anatomy of a Term Sheet: Redemption Rights
Redemption Rights provisions entitle investors to require the company to repurchase all of the outstanding shares of stock held by the investors at a certain point in the future.
Anatomy of a Term Sheet: Pay-to-Play
The Pay-to-Play provision can have significant economic impact on the investors and the company. A Pay-to-Play provision provides that any investor failing to fully exercise her “Preemptive Rights” to participate in a future financing will have some or all of her shares of preferred stock converted into common stock or into another class of preferred stock with lesser rights.
Anatomy of a Term Sheet: Conversion and Anti-dilution
In this post we look at when an investor’s preferred stock may or must convert to common stock, and how the conversion ratio may be adjusted in certain circumstances.
Anatomy of a Term Sheet: Voting Rights and Protective Provisions
Voting Rights and Protective Provisions define when investors vote with the other stockholders and when they have the right to a separate vote. Having separate voting rights in certain circumstances is important to investors because it prevents them from being outvoted by other stockholders with competing interests. The circumstances in which investors have the right to a separate vote will typically include
Anatomy of a Term Sheet: Liquidation Preference
We continue our discussion of the Charter provisions with the liquidation preference, which is the most important economic term in the term sheet after the valuation because it establishes the relative rights of the investors and the common stockholders with respect to assets available for distribution when the company winds up its business.
Anatomy of a Term Sheet: Dividends
Dividend provisions are often overlooked by entrepreneurs, but can have a significant effect on the economics of a financing. The model term sheet includes two alternative dividend provisions, one providing that dividends will be paid only when also paid to the common stock (company favorable), and the other providing for “accruing” dividends on the preferred stock (investor favorable).
Anatomy of a Term Sheet: Nature of a Term Sheet and Summary of Offering Terms
The introductory paragraph in the NVCA’s model term sheet is important because it makes clear that, for the most part, the term sheet does not create any legally binding obligations. Entrepreneurs must recognize that a term sheet is an agreement to try to reach an agreement, and therefore only a steppingstone (albeit an important one) on the path to financing.
Anatomy of a Term Sheet: Overview
A key milestone in the lifecycle of many successful companies (and, admittedly, many unsuccessful companies) is obtaining financing from angel or venture capital investors, but in negotiating with experienced investors entrepreneurs are usually at a distinct disadvantage because they are unfamiliar with standard terms. While we strongly suggest entrepreneurs consult their lawyers rather than negotiate [...]