In this video of the Startup 101 series, we explore the world of startup funding and explain to you what is a term sheet, different components of a term sheet and what are some things to keep in mind while signing your first term sheet from an investor.
So, what is a term sheet?
A term sheet is nothing but an agreement between a startup founder and investor which outlines the terms at which the investment will be made into the startup. These terms will include all the details regarding the investment like the type of funding (debt or equity), how much money is being invested, who is making the investment, how much equity is involved, the types of shares and any preferential treatment that an investor might get (board seat or discounted shares in future funding rounds).
Here is an example of what a term sheet might look like: [ Ссылка ]
Every term sheet is different.
While the basic structure of a term sheet will remain the same, it might look different depending on the amount of investment and the types of investors involved. For example, if you are raising seed funding, your angel investors might not really ask for a board seat or voting rights and your term sheet might look a lot simpler. However, if you are raising a larger round of funding from venture capital, say series A or B, your investors might ask for a greater say in your company's day to day operations and demand a board seat or voting rights. The more terms that are added to the term sheet, the more complicated it can get.
Is a term sheet the final confirmation of an investment?
No!
Getting a term sheet from an investor is only the first step in raising funds. It indicates that an investor is interested in your startup. The terms he/she would be willing to invest will be listed in the term sheet.
Once you have the term sheet, you can do three things: Accept, Reject or Renegotiate.
A startup founder can also use the term sheet from one investor to look for better deals from different investors.
After the founders and the investors have signed the term sheets, they move on to the next step which is called due diligence. In this stage, all the details about your startup like its growth, customers, and revenues are verified by the investors. Once everyone is satisfied, only then the investors finally invest in your startup.
What are the things to keep in mind before signing your first term sheet?
Before you even sign the term sheet, don't just look at the money and equity aspect of it but also other aspects like any future preferential treatment you are giving to your investors and any other important caveat that might play an important role in future rounds.
It is advisable that you consult a lawyer or an expert who understands the world of investments and term sheets.
That's it for today.
You might want to check out our latest Startup 101 series here to understand the basics of startups and entrepreneurship: [ Ссылка ]
If you liked our video, give us a like and subscribe to Backstage with Millionaires for more content on startups and entrepreneurship. Let us know what you think about this video in the comments below.
Follow Backstage with Millionaires to remain updated with our latest developments.
LinkedIn: [ Ссылка ]
Twitter: [ Ссылка ]
Instagram: [ Ссылка ]
Music: Infraction - Corporate Business Music [ Ссылка ]
#termsheet #backstagewithmillionaires #bwm
