Term Sheet

This terms sheet is a flexible tool for investors and startups. It lets you pick what's essential and what's optional based on your needs.

Essentials include the investment amount, valuation cap (for certain cases), discount, maturity date (for specific situations), and the governing law.

Optional items offer more choices, like interest rates (for some cases), how the investment converts, rights related to ownership, voting, and information, as well as rules about selling shares, preferential buying, and other terms. You can tailor it to suit your specific deal.

In short, this template lets you design your investment agreement while making sure you cover the must-have basics. Creating a Startup Terms Sheet: The Serious Business of Making It Not-So-Serious

Startup terms sheets are like the alphabet soup of the business world, filled with acronyms and jargon that can make your head spin. But fear not, we're here to break it down for you in a way that's as entertaining as it is informative. So grab your favorite snack and let's dive into the world of startup investments with a side of humor!

Essential Terms: The Must-Haves

1. Investment Amount: This is where the investor decides how much of their hard-earned cash they want to throw into the startup party. It's like picking the cover charge at a nightclub, except the nightclub is a company.
2. Valuation Cap (for SF/CN): Imagine this as the "maximum spending limit" on your credit card. It's the most the startup is worth when your investment eventually converts into ownership. Think of it as a sale at your favorite store – you want the best deal.
3. Discount: This is the "early bird special" of the startup world. It's the percentage that allows investors to buy shares at a discount compared to the next wave of investors. Who doesn't love a good discount?
4. Maturity Date (for CN): This is like setting a deadline for paying back a loan to your friend. If the startup doesn't convert your investment into equity by this date, it's time for them to cough up the cash, just like your friend would remind you for that loan repayment.
5. Governing Law: This is the rulebook that decides which laws apply to your startup relationship. Think of it as the referee in your favorite sport – it ensures everyone plays by the same rules.

Optional Terms: The "Choose Your Adventure" Part

1. Interest Rate (for CN): Interest rates in startups? Well, it's like charging your friend a bit extra for borrowing your money. But in this case, the startup pays you back with interest. Cha-ching!
2. Conversion Mechanics: Think of this as the magic spell that turns your investment into shares. It can be automatic (like turning water into wine), manual (like assembling furniture from a flat-pack), or triggered by specific events (like a surprise party).
3. Equity-Related Rights: These are like the toppings on your pizza. You can have a plain slice (no rights) or load it up with everything (lots of rights).Liquidation Preference: It's like getting in line first at an all-you-can-eat buffet when the restaurant is running out of food.Participation: You not only get to eat at the buffet first but also get a takeaway bag for later.Dividends: Think of this as the extra scoop of ice cream you get because you're a shareholder.Anti-Dilution: It's like having an invisibility cloak to protect your ownership from getting diluted.
4. Voting Rights: This is your backstage pass to the startup concert. You get to have a say in important decisions or just watch from the VIP section.Board Observer Rights: You're the groupie hanging out backstage, just without the screaming fans.
5. Information Rights: It's like getting backstage access to see how the magic happens. You'll get the inside scoop on the startup's financials and plans.Information Rights: You're on the mailing list for all the juicy updates.Financial Statements: You get to see the startup's financial dance moves.Board Reports: You get front-row seats to watch the startup's strategy unfold.
6. Transfer Restrictions: These are like the bouncers at the nightclub, deciding who gets in and who doesn't.Transfer Restrictions: You need permission to hand your ticket to someone else.Right of First Refusal: It's like telling your friend, "Hold on, let me check if I want to go to the party first."Lock-Up Period: It's the time when you promise not to leave the party early.
7. Pro Rata Rights: This is your "I want seconds" card at a buffet. You can invest more to maintain your ownership percentage. Participation: You not only get seconds but also get to choose the dessert.
8. Arbitration: Instead of going to court, think of it as settling disputes over a friendly game of poker. Winner takes all (or at least most).

Customizing Your Terms Sheet

In the end, a terms sheet is like a menu at a restaurant. You can pick and choose what you want, but make sure you're happy with your order because once it's cooked up, there's no sending it back!