The Startup Investment Term Sheet is a crucial preliminary document used when investors are preparing to make an equity investment in a startup company. It is commonly used in the UK market and governed by English and Welsh law. This document typically precedes the full investment agreement and serves to establish the fundamental commercial and legal terms of the proposed investment. While generally non-binding (except for certain provisions like exclusivity and confidentiality), it forms the basis for the preparation of detailed transaction documents and helps ensure all parties are aligned on key terms before incurring significant legal costs.
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1. Deal Overview: Summary of key investment terms including valuation, investment amount, and type of securities
2. Company Information: Basic details about the startup including registration number, registered office, and business description
3. Investment Structure: Details of share class, price per share, and investment mechanism including any tranching arrangements
4. Pre-Money Valuation: Agreed company valuation before the investment and resulting capitalization
5. Use of Proceeds: Specified use of investment funds and any restrictions on their application
6. Board Composition: Structure and composition of the board post-investment, including investor director rights
1. Anti-Dilution Provisions: Protection mechanisms against future down rounds, typically included for larger investments or experienced investors
2. Liquidation Preference: Exit priority rights and preference multiples, usually included for Series A and later investments
3. Employee Option Pool: Details of creation or expansion of employee share option pool, included when talent acquisition is key
4. Founder Vesting: Vesting schedules for founder shares, included when investors require founder commitment mechanisms
5. Drag and Tag Rights: Exit-related rights, included for larger investments or when exit strategy is important
6. Pre-emption Rights: Rights of first refusal on future share issues, typically included for significant investors
1. Cap Table: Detailed breakdown of pre and post-money shareholding structure
2. Milestone Schedule: Specific milestones and conditions for tranched investments
3. Key Terms Dictionary: Definitions and explanations of technical terms used in the term sheet
4. Information Rights Schedule: Detailed reporting requirements and information access rights for investors
5. Warranties Schedule: List of key warranties to be provided in the final investment documentation
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