You found an investor willing to invest in your start-up?! Get ready for the legal paperwork with our advices!
4 things you should know when dealing with a Term-Sheet
But first, what is a Term-Sheet exactly?
A term-sheet is a very short version of the Investment and Shareholder’s agreement (ISHA) you will sign with your investor. Because the preparation/signature of the ISHA takes time and involves costs it is important to have the TS as a work base but also has a safety net. Only parts of the Term-Sheet are usually binding, which means that both you and the investors have to respect – the rest are guidelines. Which clauses are binding and which ones are not depends on your TS and it should be made clear.
1. Read it, make sure youunderstand every single word of it. Ask your investor about clarifications if you aren’t 110% sure, do your homework, go online and find out more. It will spare you bad surprises later, and make you appear as a serious/thorough founder. One of my favorite posts about the provisions of the ISHA (but therefore good for the TS):
2 . Have someone experienced by your side. Most of the TS might not be binding but it is a work base. If you don’t say anything at the TS level, it might be more difficult once you have the bigger piece (ISHA). Therefore ask someone about the market practices (what is “normal”, what is not, what you can negotiate, etc..)
- I highly recommend to ask a lawyer. He/she will help you with the legal side as well as with the practices in the field. However lawyers fees can be high.
- If you really cannot afford one (and even if you can, multiple opinions are always better), ask around, explain the situation, reach out to the startup community. Other people have been through the same process/highs/lows and they have very good advices! Also some countries have free legal help for young entrepreneurs / startups, always check with your authorities.
3. Decide of one person in charge but involve the rest of your team since day one (at least all shareholders). One person responsible for the TS and all legal documents works best (discussing with investors, negotiating, researching, talking to a lawyer,…)but involve the rest of the team and keep them updated since day 1. They will also sign and be bound by the documents.
4. Don’t underestimate a TS & be patient!Really. it’s only a few pages but because investors want to keep the TS short, it is super packed with information. Also, because of the very technical vocabulary it can get extremely frustrating. You might have to go through that process again, so take it as an opportunity to learn – it only gets easier.
This is a guest post by Barbara De Dobbeleer. She graduated 1+ year ago from the Vrije Universities (Amsterdam) in Internet and Intellectual Property Law. For the past 7 months she has been working at next media accelerator as a legal advisor and has successfully been helping out start-ups signing Investment and Shareholder’s agreements.