So you have convinced a VC to fund your startup, but just before he writes you a check he sends you a term sheet. In this episode of eLagaan Whiteboard Friday, the eLagaan (http://elagaan.com ) team explains why having the correct term sheet is important for any company. Find out in this video what is term sheet, when are term sheets required. Sequence of events leading up to receiving the term sheet and how to deal with the term sheet once you have received it. According to Naeem Zafar , a term sheet is a non-binding contract to invest in certain terms. Find out if terms sheets are negotiable.
Term sheet mainly consists of Valuation, Control, Exit economics, Founders treatment. Which in terms defines who gets the board seats, having more control in the company, protective provisions, Liquidation preferences & If the terms sheet or contract can be modifies after it has been signed.
The video shares an example of how you (founder of the startup) could be selling the company for $20M and still just get $500k in return or very minimum, based on how the term sheet is formed and constructed. It talks about can the founders be terminated from their own company (remember Steve Jobs?).
– Read more on termsheets
For the uninitiated, Naeem Zafar has done 6 startups so far (is now the founder of BitzerMobile) and he has extensive experience in mentoring and coaching founders and CEO.
- Explained: Different classes of Venture Capital rounds
- How much VC money you should raise for your startup?
- When to raise Venture Capital Money & Why do investors invest in your startup
- How to ‘find’ a Co-Founder and divide equity
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