An SPA sets forth the specific terms related to the sale of stock to investors. If the term sheet lays out the guidelines of a deal, the stock purchase agreement solidifies and expands on them. It’s common over the course of negotiating these definitive agreements to hear parties referring back to the intentions captured in the term sheet.Ī term sheet may also include clauses around confidentiality and exclusivity, which are legally binding, to prevent the founder from shopping the term sheet around to get competing offers after they’ve already signed. The term sheet serves as the foundation for the drafting of the remaining documents (sometimes called the round's “definitive agreements”). In the term sheet, you’ll find provisions like the size of the investment, the company’s pre-money valuation, and key economic and control terms. The term sheet is a non-binding document that states the terms under which the fund manager (also known as the general partner or "GP") agrees to invest in the company. In this guide, we’ll look at the documentation an investor may receive when putting money into a startup. Therefore, it pays for an investor to understand what they’re agreeing to when they sign these documents. Where is the breakdown of economics and control found? For equity investments, it’s in the equity financing documents. Lays out the privileges and rights that come with owning preferred stock.īrad Feld and Jason Mendelson, co-founders of the VC firm Foundry Group, wrote in their bestselling book “Venture Deals” that the two things VCs should care about most when making an investment are economics and control.Įconomics refers to the return investors will get in a liquidity event, and control refers to the mechanisms an investor has to either affirmatively exercise control over the business or veto certain decisions the company makes. Provides the company the first opportunity to purchase the shares of an investor who wishes to sell them. Right of first refusal / co-sale agreement. ![]() Breaks down the rights and privileges afforded to shareholders. Sets forth requirements as to how certain shareholders must vote their shares in certain instances. Provides exceptions or explanations to representations and warranties agreed upon in the SPA. Dictates the specific terms related to the sale of stock to investors. Lays out the terms under which the GP agrees to invest.
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