Term Sheet Analysis

Negotiating Term Sheets

Summary Term Sheet • Valuation (pre-money typically). • Amount of investment (but non-binding). • Form of investment (notes, common,

preferred). • Protective provisions (sale, M&A,

liquidation, other). • Use of proceeds. • Board representation.

Summary Term Sheet (continued) • Key employee provisions. • Redemption. • Information rights. • Covenants and representations. • Expenses. • Closing date. • No shop (beware!).

Negotiating Tips • Be prepared – do your homework. • Understand what is needed to close.

– Both sides have an objective. – Both sides need to “win”.

• Be creative. – Offer innovative solutions. – Add value to their team.

• Leave ego out of the deal. – Negotiation entails compromise.

Negotiating Tips (continued) • Be consistent – you may meet again. • Never bluff.

– Bluffing rarely works. – Failed bluffing makes you look foolish.

• Learn how to close. – Ask for it. – Get to a “yes”.

Negotiating Tips (continued) • Don’t take everything the other side says at

face value. – May be posturing. – Need to know when their ‘bottom-line’.

• Anticipate the investor’s next step. • Look to the future, not the past.

– Don’t try to close based on a past deal. – Make deals on where the market is going.

Term Sheets - Summary • Non-binding details of the basis upon which

an investor is prepared to invest. • Negotiable, but with fairly significant

limitations. • Generally fairly short time frame before it

becomes stale. • May request “no-shop” which is limiting to

the entrepreneur.