Demystifying Term Sheets for Startups

1. Your Legal Team
Demystifying Investment
Termsheets
Takeaways:
* Understanding Termsheet components
* What to negotiate
* Interdependency of the terms
NovoJuris
Startup Focus. Private Equity
Expertise. Technology Spotlight.
For more information, please get in touch with us
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2. Your Legal Team
About Us
 NovoJuris fast outpaces most well-known legal
counselors and ranks among India’s 6th in Private Equity Venture Intelligence Reports.
 Legal consulting company specializing in corporate,
technology, capital markets, fund formation, private equity.
 Over the last five years we have worked with over 500
businesses on the continuum from ideation, funding to exits
and beyond.
 Started by a team with experience in business strategy, law
and technology.
 Specific services and solutions for companies at various
growth stages.
For more information, please get in touch with us
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3. Your Legal Team
Our Engagements

Fund Formation. Fund Investment. Worked on either side-Entrepreneur/Fund.

Outsourced legal department for start-ups and SMEs

Corporate governance and company secretarial compliances

Corporate structuring, Merger, amalgamation, take-over, hiving off, acquisition of
companies / businesses. The team has prior experience of handling an IPO.

Ideation, business plans

Protection of intellectual property

Legal compliance and due-diligence

Customized legal solutions for commercial transactions

Agreements, MoU’s and legal reviews

Top management legal orientation
For more information, please get in touch with us
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4. Your Legal Team
Focus and Process
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5. Patience…takes between 4-12 weeks
Intro &
Pitch
Your Legal Team
• Referrals, entrepreneur osmosis, independent attorney
• Pitch to exhibit scalability, marketing hustle, tech muscle
• Betting on the jockey versus horse
• Accelerate other investors for negotiation strength
• Informal discussion on termsheet components. Truly informal?
Negotiation & • For transparency, a non-binding TS with commercials and shareholder rights
• No-shop begins
TS
DD & SHA
• DD on business, tech, founders’ background, legal, financial, compliance.
• Definitive agreements: SA, SHA.
• Transaction docs: Employment Agreement, Reps and Warranties, ESOP,
Restated AOA
For more information, please get in touch with us
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6. Your Legal Team
• Scene
changing!!
Growth Stage
guys are cherry
picking
• Don’t forget
customer
revenue
• Angel networks
• Super Angels
• VC
• Banks too!
• Debt funding
For more information, please get in touch with us
Private Equity
• Friends
• Family
• Angels
Seed/Growth Stage
Early Stage
Focus
• Financial
engineering
• Science vs. Art
• PIPE
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7. Your Legal Team
TermSheets in a page
Commercials
Controls
Valuation : Dilution
Board composition: decision making
Liquidation Preference
Pre-emptive right, Tag, Drag, Default
Drag, ROFR. ROFO
ESOP Pool – Unused?
Exits: IPO. Strategic sale. Company
buyback. Promoter buyback.
IRR
Founders’ vesting of shares
For more information, please get in touch with us
Reserved Matters. Reporting,
Process, Budgets, Key employee
agreements,
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8. Your Legal Team
Founder Reverse Vesting
 Upfront Vesting.
 Accelerated Vesting at Exits. Death/Disability.
Vested
Unvested
Good reason:
Exiting Founder retains
Founders / then
Investors / Company
buyback at FMV
Good reason or Cause:
Exiting Founder transfers
back to Continuing
Founders / Investors /
Company buyback at FV
Cause:
Forced transfer to
Founders / Investors at
FV
-
For more information, please get in touch with us
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9. Your Legal Team
Liquidation Preference
 1.5x and participatory. What was the shareholding %?
 Preference for payment over other shareholders – LIFO
– Typically Preference Shares
– Cumulative. Compulsorily Convertible. Participatory
 A thought on the coupon rate
For more information, please get in touch with us
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10. Your Legal Team
Other things
 Co-investment.
 Next round of funding
 Other shareholders exiting
 Instrument
 Tranches. Definitive language for next tranches.
 ESOP pool. Top-ups. Treatment of unused options.
 Dilutive Issuance. Full ratchet. Broad / narrow based
For more information, please get in touch with us
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11. Your Legal Team
Beyond Valuation
 Smart Money
 Free CXO – Strategy
 Next round of funding
 Referrals and huge network
 PR
 To think an exit at seed stage funding?
For more information, please get in touch with us
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12. Final Term Sheet
Your Legal Team
Company & Business
Mybabycutest.com
Investment Amount
$ 0.5 million (Use of funds as per plan presented).
Valuation
$ 2 million post money (26% to new investors).
Instrument
Instrument is 1% CCCPS (Cumulative Compulsorily
Convertible Preference Shares). 1:1 Conversion.
Funding Milestones
Single Tranche.
Board Composition
2 founders representatives, 1 investor representative, 1
independent director. 1 board observer (non-voting for angel
investor).
Anti Dilution Rights
Full Ratchet protection upon a dilutive issuance.
Liquidation Preference
1x + Participatory Right.
Founder Vesting
33% vesting upfront. Remaining over 3 years monthly vesting.
50% accelerated vesting for death / disability. Full accelerated
vesting for Liquidation Event (defined in Definitive Agreements).
ESOP
10% set aside. Founders excluded. Unissued revert pro-rata to
founders and investors.
For more information, please get in touch with us
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13. Your Legal Team
Contact us:
sharda@novojuris.com
Questions?
@shardabalaji
In.linkedin.com/in/shardabalaji
www.novojuris.com
For more information, please get in touch with us
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