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How to Write a Term Sheet?

A term sheet is a document that outlines the terms and conditions of an investment in a startup. It is usually prepared by the investor or their legal team and presented to the startup's founders for review and negotiation. If the terms are agreed upon, the term sheet serves as a guide for preparing the final agreement and closing the deal.

Here are some steps on how to write a term sheet:

Identify the Parties Involved

The first step in writing a term sheet is to identify the parties involved in the investment. This includes the investor or investors, the startup, and any existing shareholders.

Describe the Investment

The term sheet should describe the investment being made. This includes the amount of money being invested, the type of investment (e.g. equity, debt, convertible note), and any other relevant details.

Define the Valuation

The valuation of the startup is a critical component of the term sheet. The investor will want to know how much the startup is worth and what percentage of ownership they will receive in exchange for their investment.

Outline the Terms of the Investment

The term sheet should outline the terms of the investment, including the rights and obligations of the investor and the startup. This may include the following:

  • Dividend payments

  • Liquidation preference

  • Conversion rights

  • Anti-dilution provisions

  • Board representation

  • Voting rights

Describe the Use of Funds

The term sheet should describe how the startup intends to use the funds raised through the investment. This may include product development, marketing, hiring, or other expenses.

Include any Conditions Precedent

The term sheet may include any conditions precedent that must be met before the investment can be completed. This may include due diligence, regulatory approval, or other requirements.

Hire a Startup Advisor

A well-written term sheet is critical to closing a successful investment in a startup. It outlines the terms and conditions of the investment and serves as a guide for preparing the final agreement. By following these steps, both the investor and the startup can negotiate a deal that is fair and beneficial to all parties involved.

Upthriving is a fully integrated startup growth service for entrepreneurs that have built a product with market fit. More than a startup advisory service, we execute projects that maximize revenue for your business while you focus on building the product.

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