Preparing a Venture Capital Term Sheet: Key Terms for Investors and Companies Seeking Investment

Valuation, Capital Structure, Board Composition, Protective Covenants, Exit Terms

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Wednesday, September 15, 2021

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This CLE course will provide important guidance on the preparation and negotiation of venture capital term sheets. The panel will discuss terms that impact price and valuation, liquidation preferences, board composition, drag-along and participation rights, protective covenants, and more.

Description

The term sheet is a critical document in a venture capital transaction. It sets forth the deal terms to be reflected in the final agreement and allows for negotiation of those terms upfront before the time and expense of a closing. An executed term sheet may also assist the company seeking investment in its dealings with strategic partners, creditors, suppliers, and customers.

Among the matters to address (and that may be subject to negotiation) are price and valuation, liquidation preferences, anti-dilution provisions, board composition, drag-along rights, protective covenants, information and registration rights, participation rights in future rounds of financing, and rights of first refusal on transfers of shares by founders.

The term sheet should also set forth responsibilities and timelines concerning documentation and closing, including due diligence and legal expenses, and required legal opinions. If the parties have not entered into a separate confidentiality agreement, the term sheet should contain binding provisions regarding maintaining the confidentiality of information supplied by either party.

Listen as our authoritative presenter, George Colindres, examines the critical elements of a venture capital term sheet and discusses the terms that are typically subject to negotiation.

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Outline

  1. Purpose of the term sheet and first steps in preparing
  2. Key terms
    1. Price and valuation
    2. Liquidation preference
    3. Anti-dilution: full ratchet vs. weighted average
    4. Board composition
    5. Drag-along rights
    6. Protective covenants
    7. Information and registration rights
    8. Participation rights
    9. Rights of first refusal and co-sale
    10. Closing conditions, confidentiality, and other provisions.

Benefits

The panel will review these and other notable issues:

  • What is the typical venture capital investment structure, and how should it be addressed in the term sheet?
  • What is "market" regarding legal fees, closing costs, and legal opinions required in venture capital transactions?
  • How might a signed term sheet benefit the company and the investor concerning third parties?

Faculty

Colindres, George
George Colindres
Partner
Perkins Coie

Mr. Colindres' corporate governance practice focuses on emerging companies and venture capital, including entity...  |  Read More

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