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

One simple rule in any financing for entrepreneurs is this: It is often wise to take funding from interested investors when you are offered it. The fundraising process is distracting and eats up precious time.

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

FIGURE 4 (2) Liquidation Preference: Investor Favorable: In the event of any liquidation or winding up of the Company, the holders of the Series [A] Preferred shall be entitled to receive in preference to the holders of the Common Stock a total liquidation amount equal to [three] times the Original Purchase Price per share plus any declared but unp

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

as more investors become involved, their expectations will need to be represented. The degree to which management is executing becomes increasingly under greater scrutiny by the investors.

Often board members representing preferred stock or a majority of the shareholders of a class of preferred stock (the shares that venture investors typically purchase) will expect to give approval in the event that the company contemplates such actions as taking on debt above certain modest levels, say $250,000; making significant management hires;

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 14 (13) Right of First Refusal: Investor Favorable: The Investors shall have the right in the event the Company proposes to offer equity securities to any person (other than securities issued pursuant to employee benefit plans or acquisitions, in each case as approved by the Board of Directors, including the director elected by holders of th

FIGURE 10 (9) Board Composition and Meetings: Investor Favorable: The size of the Company's Board of Directors shall initially be set at [three]. The holders of the Series [A] preferred, voting as a separate class, shall be entitled to elect two members of the Company's Board of Directors, the holders of the Common Stock shall be entitled to elect