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A Lunch and Learn Session delivered by MLA Member Rob Koturbash on Term Sheets in Angel Investing.
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www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
A n I n t r o d u c ti o n t o T e r m S h e e t sW i t h R o b K o t u r b a s h
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
• A term sheet is the basis of a legal agreement between an investor(s) and a company, outlining the terms and conditions of an investment into the target company.
Term Sheets – an Introduction
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
• Hope for the best but plan for the worst• Protect downside risk while maximizing upside
potential• Forms the basis of a legal document• Aligns interests of founders with interests of
investors• Establishes corporate governance
Goals
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Critical Items
• What do you want the deal to look like?• Type of security to be issued• Valuation and amount to be invested• Voting and information rights• Board establishment and representation
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Types of Investment
• Equity– Common– Preferred
• Debt– Straight– Convertible
• Angel investments capture upside reward, therefore Equity or Convert Debt are instruments used
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Seed Preferred Structure
• Allows upside value capture• Introduces set of rights available only to
investors– Anti dilution– Investor board seats– Information rights– Redemption rights– Rights related to future investment rounds
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Aligning Interests between Investors and Founders
• Identify key value drivers in the investment– Product launch– IP strategy– Strategic partnerships– Sales targets
• Focus on two or three key metrics• Upon value creation event, management can claw
back a portion of equity if they have demonstrated superior execution– Warrant structure
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels
Corporate Governance
• Goal is to achieve a balanced board from the start
• 5 person board minimum – 3 person boards do not work
• Expandable easily to 7– Current CEO– Founder representative– 2 Investor representatives– Independent
C O N T A C TR o b K o t u r b a s h
r k o t u r b a s h @ m a p l e l e a f a n g e l s . c o m
www.mapleleafangels.com | [email protected] | 416.646.6235 | @mapleleafangels