Term Sheet Template - National Venture Capital Association (Page 3 of 25) in pdf

TERM SHEET

FOR SERIES A PREFERRED STOCK FINANCING OF

[INSERT COMPANY NAME], INC.

[

__, 200_]

This Term Sheet summarizes the principal terms of the Series A Preferred Stock Financing of

[___________], Inc., a [Delaware] corporation (the “Company”). [In consideration of the time and

expense devoted and to be devoted by the Investors with respect to this investment, the No

Shop/Confidentiality [and Counsel and Expenses] provision(s) of this Term Sheet shall be binding

obligations of the Company whether or not the financing is consummated.] No [other] legally

binding obligations will be created until definitive agreements are executed and delivered by all

parties. This Term Sheet is not a commitment to invest, and is conditioned on the completion of

due diligence, legal review and documentation that is satisfactory to the Investors. This Term Sheet

shall be governed in all respects by the laws of the [State of Delaware].

Offering Terms

Closing Date:

As soon as practicable following the Company’s acceptance of this

Term Sheet and satisfaction of the Conditions to Closing (the

“Closing”). [provide for multiple closings if applicable]

Investor No. 1 and its affiliate entities: [_______] shares ([__]%),

Investors:

$[_________]

Investor No. 2 and its affiliate entities: [_______] shares ([__]%),

$[_________]

[as well other investors mutually agreed upon by Investors and the

Company]

$[________], [including $[________] from the conversion of

Amount Raised:

principal [and interest] on bridge notes].

The investment can be structured as a staged pay-in, with subsequent installments to be invested if the

Company has met certain milestones. This type of provision is less common than a single, up-front and unconditional

investment. Note that it may invite later disputes concerning milestone achievements and may also increase transaction

costs. Some issues that arise are: (1) are the milestones objectively verifiable; (2) if the milestones are met, does that

require the investment be made or just give the right to the Company to call in the investment; and (3) what if the

milestones have been met, but other events adverse to the Company have occurred (material adverse changes). To

clarify what happens when milestones are not met the following language may be added:

“If, in the sole and absolute judgment of the Investors, the Company has not

satisfied a performance milestone by _________, 20__, then the Investors may

either (i) waive the failure, in whole or in part, and pay the amount[, or a

portion thereof,] set opposite such milestone on Exhibit A[, such payment to be

conditioned upon the receipt by the Investors of a written commitment by the

Company to use its best efforts to complete the applicable milestone by a

specified date and to satisfy such other conditions as the Investors may

require,] [(ii) elect not to make such milestone payment but reserve the right to

ABA Comments to NVCA Term Sheet - Final Version.DOC

Term Sheet Template - National Venture Capital Association Page 3

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