Series A Term Sheet - Exposure Therapy
Publishing our standard term sheet
A common way to get over phobias and anxieties is via exposure therapy. This type of treatment gradually exposes people to their fears so they can deal with them. So, we like to think of publishing our series A term sheet template as a way to do just that for the fundraising entrepreneur.
Jokes aside, we have been toying with the idea of publishing our series A term sheet template for a while now. Other VCs like Cherry Ventures and earlier Point Nine have done so before, and we think it helps founders to compare typical terms. When more firms open up, it gradually sets a standard in the market. So, we root for others to do the same!
Our term sheet for a series A is not a one-pager. Rather it does spell out a few things in more detail. We totally get that this isn't 'hip, but the benefit is that you can better expect what's coming when we go into long-form documentation. Again, exposure therapy.
The other comment to make is that this is our starting point and merely presents an array of particular deal terms. Every term sheet is custom-made and tailored to meet specific requirements and other deal specifics. The terms of the round will normally be negotiated with the founders. We realize that this is not the most fun part of the process, but it is important that we agree on these principles for successful collaboration in the future and we hope to start working with you soon after.
Below you will find our Term Sheet template. We annotated it with the help of VC specialist lawfirm Ingen Housz. Legalese is always a bit tough to read, but we've tried to make it comprehensible.
TERM SHEET
SECTION A.
I. GENERAL
| Company | [Company Legal Name], a [Country] [private company with limited liability] (the Company) |
| Founder | [ * ] |
| Non-binding | Section A of this Term Sheet is non-binding and intended solely as a basis for further discussion. Section B of this Term Sheet sets out the binding provisions. |
II. KEY TERMS OF THE INVESTMENT
| Investment Amount | The total investment in the Series [*] by Keen, the existing shareholders, and co-investors (Further Investors) amounts to €[*] million, of which Keen will invest €[*] million. The Further Investors are investors suitable to the Founder and Keen. |
| Valuation | Pre-money valuation of €[*] million on a fully-diluted basis. Consequently, a €[*] million post-money valuation (including the: (i) shares issuable upon conversion of all outstanding exercisable or convertible instruments (including but not limited to options, convertible debt and Safes); and (ii) ungranted shares allocated to an employee stock option plan (“ESOP”) equal to [*]% of the post-money fully diluted capitalization (such percentage to exclude granted or promised options)), with Keen holding no less than [*]%of the fully diluted capitalization of the Company post-money and following the ESOP expansion. |
| Representations and Warranties | The Company will give customary representations and warranties under the investment and shareholders' agreement. |
| Liquidation Preference | 1x non-participating liquidation preference for the Series [*] Shares, ranking senior to all existing shares [OR ranking pari passu to Series [*] Shares]. |
| Anti-Dilution | Standard broad-based weighted average anti-dilution protection. |
| Pre-emption | All shareholders shall have a pro-rata subscription right for any future equity or similar (e.g., convertible loans) financing rounds. Non-exercised subscription rights shall be allocated pro rata to the exercising shareholders. |
III. TRANSFER OF SHARES
| ROFR | All shareholders shall have a right of first refusal for any shares proposed to be sold by a shareholder in the Company, except in the case of a shareholder transferring to a permitted transferee. |
| Tag Along | Any shareholder intending to sell shares in the Company will give the other shareholders the opportunity to participate in such sale with an equivalent proportion. |
| Drag Along | If an unaffiliated third party makes an offer for all of the shares in the Company, with a [50]% shareholders’ majority and the consent of the Investor Majority, the remaining shareholders shall sell their shares on the same terms and conditions. Investor Majority shall mean the consent of more than [##]% of the holders of [Series [*] Shares] / Preferred shares]. |
IV. FOUNDER AND EMPLOYEE-RELATED MATTERS
| Founder Reverse Vesting | Existing Vesting shall – with respect to unvested shares as of closing – re-start with signing of the definitive agreements for [##] months. Vesting terms shall be based on a customary good/bad leaver concept and are subject to due diligence review. |
| Lock-up | The Founder may not (directly or indirectly) transfer their shares in the Company prior to the expiry of the vesting period, without the prior written consent of Keen. |
| Non-Compete, Non-Solicitation | All current and future key employees will enter into confidentiality, IP assignment, non-competition, and non-solicitation agreements satisfactory to Keen. The Company will identify each key employee. |
V. INVESTOR'S RIGHTS
| Board of Directors | Keen may appoint one [non-executive Board Director or Supervisory Board Director] and one non-voting Board Observer. Full Board composition to be discussed. Board meetings will take place at least 4 times per year. The Company shall take out insurance (premiums to be borne by the Company) against director’s liability for each member of the Board. |
| Protective Provisions | Approval of the Investor Majority shall be required for customary list of reserved matters of the Board of Directors and the General Meeting. |
| Information Rights | The Company will grant customary information rights in a format reasonably acceptable to Keen. |
| ESG | Within 12 months after closing of the funding round the Company will: - adopt a climate policy including measuring its direct operational carbon footprint, setting clear action steps to reduce it, and offsetting what is not reduced, and - evaluate and implement best business practices with respect to ESG, including efforts to promote diversity in the employee base |
| Put Option | Keen can oblige the Founders or the Company to (re)purchase its shares for an aggregate amount of €1, to the discretion of Keen. |
VI. OTHER
| Conditions | The investment is subject to the satisfactory completion of due diligence (including KYC and AML procedure), signing of a management rights letter describing Keen’s obligations due to its funding by the EIF and KfW, definitive agreements, compliance with the Term Sheet, agreement on a business plan and budget, and approval of Keen’s Investment Committee. |
| Costs | The Company will pay the legal and due diligence fees and expenses of Keen, not to exceed €[ * ]. |
SECTION B.
I. BINDING OBLIGATIONS
| Confidentiality | The existence and terms of this proposal shall be held in confidence by the Company and the existing shareholders and may not be disclosed to a third party except as may be necessary to consummate the financing. |
| Exclusivity | The Company agrees not to discuss any potential investment in the Company or to continue or initiate any such discussions with any other potential investors unless consented to by Keen. This right shall expire 45 days after the signing of the Term Sheet. |
| Governing Law and Venue | The laws of the Netherlands will govern this summary of terms, without regards to principles of conflicts of law. |
| Expiry | This Term Sheet expires on [DATE] at 12:00 noon (CET) unless accepted by the Company. |