As promised in my previous thread, here are my standard term sheet and calculator.
Disclaimer: I am not a lawyer. @UpCounsel has all the lawyers.
Every entrepreneur should read my notes below before signing ANY term sheet.
(Link to a public Google Drive at the end.)
Disclaimer: I am not a lawyer. @UpCounsel has all the lawyers.
Every entrepreneur should read my notes below before signing ANY term sheet.
(Link to a public Google Drive at the end.)
Most of the terms in my term sheet are "market standard" for a priced funding round.
If at all possible earlier, do not do a priced funding round and raise money on SAFE notes. upcounsel.com/safe-notes
Once you raise $3-5 Million or more, investors will want a priced round.
If at all possible earlier, do not do a priced funding round and raise money on SAFE notes. upcounsel.com/safe-notes
Once you raise $3-5 Million or more, investors will want a priced round.
A priced round means that investors are buying shares, rather than merely a piece of paper that enables them to have the right to shares (a SAFE or convertible note).
That means more legal sophistication and expense. But also more scalability. This is a "Series A".
That means more legal sophistication and expense. But also more scalability. This is a "Series A".
On liquidation preferences: You should have a 1 times, non-participating preference.
Participating pref is pretty nasty. It means the investor gets their money back first and THEN their pro rata share.
Non-participating means they get their money back OR their pro rata share.
Participating pref is pretty nasty. It means the investor gets their money back first and THEN their pro rata share.
Non-participating means they get their money back OR their pro rata share.
Participating preferences are only appropriate in downside.
If a company is recapitalized at a much lower value, even 3x participating (they get THREE TIMES their money and then participate pro rata) may be necessary.
Pro rata = "in proportion" to your share percentage.
If a company is recapitalized at a much lower value, even 3x participating (they get THREE TIMES their money and then participate pro rata) may be necessary.
Pro rata = "in proportion" to your share percentage.
There is one non-market term that makes a massive (10-15%) difference. You can always win the argument for it.
It is that only vested stock options count when totaling fully diluted shares.
Argument is that new investors benefit too from unvested shares (they are future comp)
It is that only vested stock options count when totaling fully diluted shares.
Argument is that new investors benefit too from unvested shares (they are future comp)
Many other terms like tag-along, drag-along are fair and not worth arguing over too much.
You should pay reasonable legal expenses of your investor out of proceeds.
Broad based anti-dilution is pretty fair. Do not agree to full ratchet anti-dilution at any price.
You should pay reasonable legal expenses of your investor out of proceeds.
Broad based anti-dilution is pretty fair. Do not agree to full ratchet anti-dilution at any price.
A knowledgeable lawyer, starting with this document, can get you a very long way. You can get that on @UpCounsel waaayyy cheaper than you think. (just try it)
I would not recommend submitting this without any legal review unless you know what every word in the doc means.
I would not recommend submitting this without any legal review unless you know what every word in the doc means.
You can access the files here:
drive.google.com/drive/folders/…
Just hit "duplicate" to make your own copy.
Thank you!
drive.google.com/drive/folders/…
Just hit "duplicate" to make your own copy.
Thank you!
• • •
Missing some Tweet in this thread? You can try to
force a refresh
