Business Case Studies & Business Publications

Early-Stage Term Sheets

Chaplinsky, Susan

Technical Note

Early-Stage Term Sheets

Chaplinsky, Susan

F-1730 | Published May 8, 2015 | 13 pages Technical Note

Collection: Darden School of Business

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This note was written as an updated version of "The Early-Stage Term Sheet" (UVA-F-1444) and may be used in its place. In seeking funding for an early-stage company, the entrepreneur and investor will confront choices about the amount, terms, and conditions of the financing. These terms are usually set forth in a term sheet that contains a host of provisions designed to protect the value of an investor's capital. These terms define the investor's rights as a holder of a senior security to common stock and are designed to secure the investor's ownership position, provide the right to monitor and control important company decisions, and facilitate exit from the investment. The note focuses on a few key aspects of these terms?antidilution, liquidation preference, dividends, control rights, and redemption?all of which are widely regarded by practitioners as having the greatest ability to affect the economic returns for the parties involved in an early-stage investment. Although not meant to be exhaustive, the examples offer a perspective on how a term can be worded in order to confer differential rights between the parties.