New Term Sheet Presentation FINAL

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A presentation given by @billbotts to #VegasTech about Term Sheets.

Transcript of New Term Sheet Presentation FINAL

Who needs or even wants one?

William Botts

LOI

On line creation

Sample

About 11,600,000Debt

Purchase Agreement

Common Stock

Preferred A

Why? When? What? Examples

First: If you need cash for your business you better understand the deal: --A pound of flesh vs. 10% ownership might make you think more about the deal --Handshakes are great but don t suffice --Defines the intent of the parties Second: Even if a one shot injection is all you need, the deal should be documented and agreed to by both parties Lastly: Loosey goosey deals lead to loss of friendships, lawsuits, inability to do future financings and other troublesTHEOREM: Thou who wants to build a business should be

businesslike in thy practices (me)

+C A S H

Cash funds losses

Cash funds growth Mature Business

Growth Stage Idea/Concept stage Seed Early Stage Startup Breakeven

$0

_

+C A S H Idea/Concept $0

$Breakeven

Mature Business

Growth Stage

The Valley of DeathEarly Stage Seed

_

Startup

Family and Friends as investors in you and your deal Business Associates

Venture Capital Funds/firms

Economic Development, funds, States, Feds, etc.

The Process: --Sell your concept --Negotiate a TERM SHEET --If all GO, execute the deal (stock purchase agreement, note, deal summary or other documents that define the deal) --Build shareholder value

Depending on the type of deal there are many forms of Term SheetsExamples: $ If a Simple Loan, use a simple note $ If a Loan with Equity Kicker (warrants), a simple one page term sheet with the conditions, terms, interest rate, payoff & warrant definitions $ If Convertible Debt, need full fledged term sheet $ If a Preferred Stock offering, must cover the entire legal waterfront $ If Crowdfunding, who knows how this is going to unfold? $ If Dad s Credit Card minimize commitments $ Stickups the easiest requiring no Term Sheet but can lead to a Rap Sheet and free room & board

As early as possibleIn order not to waste lots of time if the deal sucks To allow time to pursue other avenues before you run out of gas Great way to get better acquainted with your soon to be business partner Find out early if you been smoking too much weed or if someone will really pay to play in your deal As an angel investor I want early terms negotiations to be a part of my due diligence process, I want to know if the entrepreneur has his/her head screwed on right and if a deal is even possible-ASAP

Part 1 Offering Terms Name of issuer Type of offering Closing date Valuation, pre and post Amount of raise $$$ Price per share if equity Use of Proceeds Cap table Part 2-Ts & Cs for Stock

Part 2--(continued) Voting right Board seats and comp Protective provisions Information rights Registration rights (PAGES) Part 3--Employee Matters Stock option, vesting, etc Proprietary & invention agreements Founder activities Voting agreements, etc Compensation (sometimes) Key Man Insurance

Dividends Liquidation Preferences Conversion Antidilution

Part 4 Other Matters Closing deliverables Assignment Purchase agreement Legal fees and expenses Confidentiality Governing Law No shop agreement Condition to closing

Attachments Cap table

Amount of money needed

Entrepreneur under estimates need

Pre-money valuation..............Founder usually feels company worth more then offered. Liquidation Preference Board representation General restriction on or requirements placed on entrepreneur s actions decisions ..Investors want their money back first then share in proceeds pro rata .Number of seats sometime an issue .Sometimes a problem

Get a Signed Term Sheet and You are on Your Way!(though normally not binding)

Don t get greedy (100% of $0 is still $0) Remember, the investor will have as much or more to lose than you, so wants to help not hurt the business THEOREM Whether you are a rich entrepreneur or a poor entrepreneur its always nice to risk the other guys money (me again)

--Loan --Debt w/warrants --Preferred A --One weird deal

A TERRIFIC FREE GUIDE for ENTREPRENEURS-All 170 pages of guide available -Cover about everything an entrepreneur might want to know -Written by President & CEO of i2e - i2e is a combination incubator, seed funding, mentoring and angel funding organization in Oklahoma City - i2e stands for Innovation to Enterprise

www.i2e.org/library/the-entrepreneurs_path/