Preparing a Venture Capital Term Sheet: Key Terms for Investors and Companies Seeking Investment
Valuation, Capital Structure, Board Composition, Protective Covenants, Exit Terms
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Banking and Finance
- event Date
Tuesday, June 27, 2023
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will provide important guidance on the preparation and negotiation of venture capital term sheets. The panel will discuss terms that impact price and valuation, liquidation preferences, board composition, drag-along and participation rights, protective covenants, and more.
Mr. Cohen represents entrepreneurs, private equity investors, and venture capital funds. He advises clients in such industries as technology, life sciences, chemicals, consumer products, digital health, and fintech. He counsels mid-Atlantic region investors and emerging growth companies in a variety of business transaction including equity financing transactions, mergers and acquisitions (M&A), divestitures, initial public offerings (IPOs), joint ventures, and international strategic partnerships. He is the former chair of the firm’s emerging companies and venture capital practice. Mr. Cohen helps develop and implement growth strategies, working with companies throughout their entire lifecycle.
Mr. Mo has represented emerging growth companies, major public companies, investment banks, venture capital funds and private equity funds in hundreds of public offerings, mergers and acquisitions, buyouts, venture capital financings and other complex transactions. He has extensive experience in corporate governance matters and regularly acts as general outside counsel to public and private companies at all stages of development, particularly in the technology, life sciences, clean energy technology and consumer sectors. Mr. Mo has lectured extensively at seminars and has given expert legal commentary on emerging growth companies and the technology sector for CNN Moneyline, CNBC Business Center and various publications.
Mr. Kahan's corporate transactional practice focuses on venture capital and private equity investments, mergers and acquisitions, divestitures and spin-offs, public securities offerings, and corporate governance. He also regularly advises clients in strategic technology transactions, including professional service agreements, software-as-a-service agreements, sourcing agreements, transition service agreements, distribution agreements, reseller agreements, and intellectual property licensing.
The term sheet is a critical document in a venture capital transaction. It sets forth the deal terms to be reflected in the final agreement and allows for negotiation of those terms upfront before the time and expense of a closing. An executed term sheet may also assist the company seeking investment in its dealings with strategic partners, creditors, suppliers, and customers.
Among the matters to address (and that may be subject to negotiation) are price and valuation, liquidation preferences, anti-dilution provisions, board composition, drag-along rights, protective covenants, information and registration rights, participation rights in future rounds of financing, and rights of first refusal on transfers of shares by founders.
The term sheet should also set forth responsibilities and timelines concerning documentation and closing, including due diligence and legal expenses, and required legal opinions. If the parties have not entered into a separate confidentiality agreement, the term sheet should contain binding provisions regarding maintaining the confidentiality of the information supplied by either party.
Listen as our authoritative panel examines the critical elements of a venture capital term sheet and discusses the terms that are typically subject to negotiation.
- Purpose of the term sheet and first steps in preparing
- Key terms
- Price and valuation
- Liquidation preference
- Anti-dilution: full ratchet vs. weighted average
- Board composition
- Drag-along rights
- Protective covenants
- Information and registration rights
- Participation rights
- Rights of first refusal and co-sale
- Closing conditions, confidentiality, and other provisions.
The panel will review these and other notable issues:
- What is the typical venture capital investment structure, and how should it be addressed in the term sheet?
- What is "market" regarding legal fees, closing costs, and legal opinions required in venture capital transactions?
- How might a signed term sheet benefit the company and the investor concerning third parties?
- How should follow-on financing rounds be addressed in the term sheet?
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