The “Miscellaneous” section of a term sheet typically bundles various standard legal provisions that, while not directly related to the core economic terms of the investment, are critical for the enforceability, interpretation, and successful execution of the overall agreement. Key elements often found here include: Why it Matters? These “miscellaneous” clauses are far from trivial;…
The Confidentiality clause (often referred to interchangeably with a Non-Disclosure Agreement or NDA) is a contractual obligation that prevents parties involved in a potential investment from disclosing or misusing sensitive information shared during the negotiation and due diligence process. Imagine you’re sharing your secret recipe with a potential investor. This clause is like a promise…
When you’re a founder deep in fundraising, receiving a term sheet from a potential investor is a significant milestone. It’s an exciting step, but it also marks the beginning of navigating some intricate legal language. Among the various clauses, the “No-Shop” or “Exclusivity” clause is almost always legally binding, unlike many other parts of a…
The Right of First Refusal (ROFR) is a contractual provision that gives certain existing shareholders (often the company itself and/or its investors) the first opportunity to purchase shares from a selling shareholder before those shares can be offered to an outside party. Think of it as “first dibs” on shares. If a founder or another…
One crucial clause that often appears, and which founders must understand thoroughly, is “Information & Inspection Rights.” This section outlines what information investors are entitled to receive about your company and their right to review your operations. Definition Information & Inspection Rights grant investors the contractual ability to access a startup’s financial and operational data,…
An ESOP Pool is a portion of a company’s shares set aside specifically for its employees, advisors, and sometimes consultants. Think of it as a reserve of equity that a company uses to incentivize, reward, and retain talent by giving them a direct ownership stake. Some Terminology: Why It Matters? The ESOP pool is a…
Among the many crucial clauses of a term sheet, “Exit Rights,” specifically “Drag Along” and “Tag Along” provisions, are important. These clauses dictate how and when shareholders can sell their stakes in the company, significantly impacting a founder’s control and potential returns. This guide breaks down these concepts, highlighting their importance, common variations, and key…
This guide aims to break down the “Founder Vesting & Cliff” clause, helping you understand its implications, common variations, and what to watch out for to protect your interests. Definition Founder vesting is a mechanism where a founder’s equity (ownership shares) in a company is earned over a defined period of time or upon achieving…
For first-time founders, navigating the intricacies of a venture capital term sheet can be daunting. Each clause carries significant implications for your company’s future and your ownership stake. One such critical clause is “Anti-Dilution Protection,” designed to safeguard investors’ interests, particularly during challenging financial periods for your startup. This article will break down Anti-Dilution Protection,…
As a founder, securing investment is a monumental step, but it’s equally vital to understand the intricate details of the term sheet that accompanies that investment. Among the many clauses, Voting Rights stand out as a cornerstone, directly impacting who makes decisions and steers the future of your company. Definition In simple terms, “Voting Rights”…
[forminator_form id="35"]