Raising capital is harder than it should be in emerging startup communities largely in part to a lack of established processes and shared terms. Everything is new and that’s not really a good thing when it comes to term sheets and deal terms.
I’ve suggested the idea multiple times that communities could have a community term sheet that everyone starts negotiating from, and then go to final docs after that.
Midwest investors and founders lose a lot of time trying to figure out the term sheet. Sometimes, they lose even more time deciding what the terms should be. So I’m going to just share a one page term sheet template. Here is a Google doc you can copy/hack up and make your own.
This is just a template and assumes you’ll update the key terms to your liking. It also assumes that you’ll update ownership expectations and investment amounts to reflect reality. In this fake scenario:
- Investors are investing $1,000,000 for 20% of the company at a $5,000,000 post money valuation. A $4,000,000 pre money valuation.
- There are two founders with equal shares, each with 35% ownership of the company.
- There is a fresh option pool being created that accounts for 10% of the ownership which will be allocated across future team members.
It’s a place to negotiate from. Most deals get done with new investors owning somewhere between 15-30% after a round is done. Sometimes it’s more, sometimes it’s less. If your investor is non-operational and wants more than 30%, I’d highly recommend talking to other investors to level set.
After a term sheet is executed you’ll need an attorney to handle closing docs. Most people use Gunderson Dettmer or Cooley and both can create more robust term sheets if you want them. Cooley even has a nice tool for generating docs.
This template was heavily influenced by the term sheets that Drive Capital has used in the past. I share this with their consent.