Term Sheet Investor Checklist
Learn the necessary terms that you need to check off in your term sheet and how it can beneficially protect both companies and investors from unwanted legal consequences both during and after the period of investment.
Let’s set the scene:
You have decided to start a business and are now at the funding stage. You have discussed with potential investors and they are interested by your project. They now want more details on what shape their money will take.
Before the final agreement of investment, you submit a term sheet to outline what you propose to do so the investors can review the potential terms. Think of the term sheet as a ‘pre-nup’. Like a marriage, both the business and the investors want to protect themselves from the insecurities and confusions of the early stages. They intend to commit fully but are attempting to align mutual goals and sooth any issues to avoid later misunderstandings. It is therefore a non-binding agreement in preparation for the investment contract and subject to change.
Checklist for Term Sheet – New Investors
The term sheet covers the important information the investor will want to know. You should include:
- Company details: Name and ACN;
- Investor details: Name and ACN (if company);
- Investment Amount for percentage equity of the fully diluted capital of the Company;
- Investment Amount for percentage capital of the fully diluted capital of the Company;
- Round size;
- Seed Shares details: conversion option, class of converted share, dividend option;
- Current Valuation of the company;
- Percentage of shares available in an Employee Share Scheme;
- Shares currently appointed to board of directors;
- Exclusivity period for transaction; and
- Maximum costs company will bear for the preparation of the proposed transaction.
Steps to consider taking after completing the term sheet:
- After completing and checking the term sheet, send it to the investors. You should allow the Investor adequate time to read and understand the term sheet (exclusivity period applicable);
- Make sure the Investor and the Company have dated and signed the Term Sheet; and
- 3. As negotiations progress, consider completing a new Shareholder Agreement or new Subscription Agreement.
If you’re ready to start investing, with LawPath you can create a Term Sheet in under 15 minutes.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.