Term Sheets & Valuations: A Line by Line Look at the Intricacies of Term Sheets & Valutions (Bigwig Briefs)

possible red flags any term sheet may have. The three biggest are as follows: 1) Underfinancing One red flag is if an amount of money offered by an investor is lower than the dollar amount the entrepreneur feels he or she reasonably needs

3. Milestones Milestones can be a reasonable approach to constructing a term sheet; they can also be a serious red flag.

Beware of Strategic Partners That Become Investors A final red flag, for both investors and entrepreneurs, is when a firm's strategic partner is interested in becoming an investor in that company.

FIGURE 12 (11) Information Rights: Investor Favorable: So long as an Investor continues to hold shares of Series [A] Preferred or Common Stock issued upon conversion of the Series [A] Preferred, the Company shall deliver to the Investor audited annual financial statements, audited by a Big Five accounting firm, and unaudited quarterly financial sta

Consequently, there are two variables that differentiate the Investor Favorable and Company Favorable clauses in Figure 6. They are the number of times the original purchase price of the preferred stock will automatically convert into common and facilitate a public offering, and the amount of money that will qualify an IPO as acceptable to the pref

Those investors, having agreed to finance the company on different terms from the common, ask for certain rights, in terms of influence. This is done to compensate for what is typically a minority position at a higher price than common or to retain a level of influence over whether the company entertains future financings, on what terms those finan

2. Limitations to the Scope of a Syndicate Another red flag is investors who try to dissuade an entrepreneur from opening a round or increasing it in size in order to accommodate other interested VCs.

FIGURE 8 (7) Voting Rights: [Investor Favorable, Middle of the Road and Company Favorable are the same.] The Series [A] Preferred will vote together with the Common Stock and not as a separate class except as specifically provided herein or as otherwise required by law. Each share of Series [A] Preferred shall have a number of votes equal to the nu

FIGURE 1 [Company Name] [Term Sheet Date] MEMORANDUM OF TERMS FOR PRIVATE PLACEMENT OF EQUITY SECURITIES General [______ ] Ventures, L.P., and [ ] (the “Investors”) are prepared to invest $ [ ] million in [ ] (the “Company”) under the terms contained in this term sheet. With the exception of the section of this agreement relating to expenses, this