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Funding Term Sheet Template for Germany

A German law-governed Funding Term Sheet is a preliminary document that outlines the proposed terms and conditions for an investment transaction. It serves as a foundation for negotiating and drafting definitive investment agreements under German legal requirements. The document incorporates provisions compliant with German corporate law, particularly the GmbH-Gesetz for limited liability companies or Aktiengesetz for stock corporations, while addressing key investment terms such as valuation, governance rights, and investor protections. While largely non-binding except for specific provisions like confidentiality and exclusivity, it represents a crucial step in the German investment process, providing a structured framework for subsequent detailed documentation.

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What is a Funding Term Sheet?

The Funding Term Sheet serves as an essential preliminary document in German investment transactions, outlining the fundamental terms and conditions of a proposed investment. It is typically used during the early stages of investment negotiations, after initial interest has been established but before detailed due diligence and final documentation. The document includes crucial information such as investment amount, valuation, governance rights, and key protection provisions, all structured in compliance with German legal requirements. While most provisions in a Funding Term Sheet are non-binding, it serves as a crucial roadmap for attorneys drafting the final investment agreements and helps ensure all parties have a clear understanding of the proposed transaction terms. The document must align with German corporate law requirements, particularly considering the specific regulations for GmbH (limited liability companies) or AG (stock corporations) structures.

What sections should be included in a Funding Term Sheet?

1. Parties: Identification of the company receiving funding and the investor(s)

2. Background: Brief context of the company, purpose of the investment, and current capitalization

3. Definitions: Key terms used throughout the term sheet

4. Investment Terms: Amount of investment, type of securities, price per share, and pre-money valuation

5. Company Capitalization: Pre and post-money cap table, showing ownership structure

6. Investor Rights: Basic rights attached to the investment including voting, anti-dilution, and information rights

7. Board Composition: Structure and composition of the board post-investment

8. Transfer Restrictions: Limitations on transfer of shares and right of first refusal

9. Closing Conditions: Key conditions that must be met before the investment is completed

10. Timeline: Expected dates for due diligence, documentation, and closing

11. Confidentiality: Confidentiality obligations regarding the term sheet and negotiations

12. Binding Terms: Specification of which terms are binding and non-binding

What sections are optional to include in a Funding Term Sheet?

1. Liquidation Preference: Terms defining investor priority in liquidation events - used for preferred share investments

2. Conversion Rights: Terms for converting preferred shares to common shares - included for convertible preferred stock investments

3. Anti-dilution Protection: Detailed provisions protecting against dilution - used in more sophisticated investment rounds

4. Participation Rights: Terms for participation in future funding rounds - included for larger or lead investors

5. Tag-Along Rights: Co-sale rights for investors - typically included for minority investor protection

6. Drag-Along Rights: Forced sale provisions - included when majority stakeholders want exit flexibility

7. Dividend Rights: Terms for dividend payments - included if relevant to investment structure

8. Registration Rights: Rights related to future public offerings - included for later-stage investments

9. Employee Stock Option Pool: Terms for employee equity incentives - included if ESOP is part of the deal

10. Key Person Provisions: Terms related to key employee retention - included for founder-dependent businesses

What schedules should be included in a Funding Term Sheet?

1. Cap Table: Detailed breakdown of current and post-investment shareholding structure

2. Key Financial Terms Summary: Summary table of main financial terms and calculations

3. Use of Proceeds: Breakdown of how investment funds will be used

4. Key Milestones: Timeline of expected business and investment milestones

5. Due Diligence Checklist: List of required due diligence items

6. Corporate Information: Summary of key corporate and legal information

Authors

Alex Denne

Head of Growth (Open Source Law) @ tiktok成人版 | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

Germany

Document Type

Financing Agreement

Cost

Free to use

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