A VC Term sheet is a legally non-binding document. They can be anywhere between 1-10+ pages which define the various terms of the deal for the fundraising startup.
Included:
Valuation
Structure (including exit waterfall)
Share options
Other economics (growth shares, preference dividends, tranched investments)
Anti-Dilution
Board composition and Structure
Founder Vesting and leaver provisions
Drag and Tag along, company sale and pre-emption right
Investor consents, information rights and non-competes
Warranties, fees, exclusivity
Types of Lead Investors:
EIS Funds ( Enterprise Investment schemes)
Venture Capital Trust (VCT)
VC (LP Funds)
Family offices
Corporate Venture Capital (CVC)
VC investors often receive preference shares in the companies they invest in. The rights attaching to the term sheets will be set out in the term sheet.
The liquidation preference determines the order in which proceeds are paid out on a liquidity event. This provides downside protection as it allows the holders of the preferred shares to be paid first when proceeds are distributed.
The liquidation preference priority stack in the term sheet sets out the order in which the preferred shareholders are paid out. There are mainly two types; Standard and Pari Passu.
A 1.0x, non-participating liquidation preference is the most founder friendly option. Aa 10% option pool was the most common size pool irrespective whether the pool was calculated in the pre or post money valuation.
Source: SVB UK
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