by Kim Lavine
Next a Term Sheet had to be drafted. I was confident and relieved to put the details of this enormous task in the hands of Smart Money, Symphony Money, who was a lawyer, and no less than two attorneys in his office. Smart Money wasn’t going to let just any attorney handle this. He wasn’t going to go to all the trouble of balancing volatile personalities and combustible financials to craft a deal equal to any work of art, and turn it over to a lawyer who would mess it up.
A Term Sheet is a document usually five to ten pages long summarizing essential terms and conditions of an investment opportunity.
Anatomy of a Term Sheet
Each one of these items will be addressed in a Term Sheet and specifically spell out all the details in a paragraph for each.
Type of Security
Are you selling stock in exchange for equity or looking for a loan in the form of a note?
What are the names of the investors who have agreed to the investment terms?
How much money are you raising and on what terms in what time period?
Use of Proceeds
Details of how you are going to spend the money you are raising.
What are the conditions to closing, what day is it set for and where will it take place?
A 'Cap Table' is included showing how ownership in shares and or equity will break down with individual shareholders and investors post money.
Will new corporation documents be issued, by whom and in what entity and state?
Term of Payment
How will you actually get the money? Will it be deposited into a bank account? Who has access to it and how do they access it?
Terms of Conversion
If you issued a warrant or note, how is an investor able to convert it or call it in for payment?
What are the specifics of the warrant or note?
What type of collateral or equity if any secures the loans or warrants?
how are investors protected or indemnified?
Board of Directors
Who's on the Board of Directors and what is their function?
Indemnification of Board of Directors
How are the people on the Board protected personally from business liabilities?
Management and Information Rights
Who is the Management Team and what rights do investors have to information and reporting?
Investor Participation Rights
How can investors participate (or not) in the general operation of the business?
Guaranty of Investors
How are investors guaranteeing their investment?
Proprietary Information, Inventions and Non-compete Agreements
How is Intellectual Property protected?
How long do investors have to participate on exclusive terms on this investment?
All parties guarantee to keep the names and details of all parties confidential under what terms?
Legal Fees and Expenses
Who is paying all the legal fees, which can average $60,000 for a standard closing?
When does this Term Sheet expire?
An excerpt from MOMMY MILLIONAIRE