This paper on preparing a venture capital term sheet discusses the following: Purpose and Structure: The term sheet is essential for outlining the key terms of a venture capital investment. It facilitates agreement on major terms, saving time and legal costs. Although generally non-binding, it can include binding clauses on confidentiality and reimbursement of expenses. Non-Binding Nature: Explicitly state that the term sheet is non-binding, with obligations contingent on final agreements and due diligence. Binding clauses may cover confidentiality and reimbursement of expenses. Economic Terms: Securities: Specifies the type of securities (e.g., common or preferred stock, warrants) and their rights. Investment and Capitalization: Details the total investment amount and ownership percentage post-financing, including the impact of convertible securities. Price Per Share: Defines the pre-money valuation divided by the number of shares, influencing the per-share price and dilution effects. Dividends: Describes whether dividends are cumulative (accruing regardless of company action) or non-cumulative (paid only if declared). Control Rights: Stock Voting Rights : Outlines voting rights for investors, including any special or protective rights for preferred stock. Board Representation: Specifies the process for appointing board members, often requiring charter amendments or stockholder agreements. Protective Provisions: Includes special approval rights for significant corporate actions to safeguard investor interests. Investor Protections: Reimbursement of Expenses: Terms for covering investors' legal, diligence, and administrative costs, including caps and conditions for reimbursement. Vesting of Founder Shares: Investors often require vesting for founders' shares to ensure ongoing commitment and mitigate dilution from founder departures. Employee Stock Options: Details vesting schedules for employee options, ensuring retention of key staff. Option Pool Increase: Specifies the size of the equity plan pool, often negotiated to balance attracting talent and minimizing dilution. Additional Provisions: Mandatory Conversion : Conditions under which preferred shares automatically convert to common shares, typically linked to IPOs or significant company milestones. Non-Compete Agreements: Potential requirements for key employees to sign non-compete and non-solicitation agreements, balancing investor protection with enforceability concerns.

Comprehensive Overview: Provides a detailed analysis of research in venture capital and private equity, offering valuable insights into current trends and future directions. Geographical Focus and Methodological Choices: Highlights the global scope and diverse methodologies used in research, enabling a broader understanding of the fields. Foundational Themes in Venture Capital: Identifies key themes such as adoption, financing processes, roles in business, governance, syndication, and public organization creation, essential for understanding venture capital dynamics. Key Themes in Private Equity: Emphasizes important topics like style drift into venture capital, buyouts, privatization, valuation, and performance, crucial for comprehending private equity investment strategies. Guidance for Future Research: Offers directions for future research, helping scholars and practitioners focus on pertinent issues and gaps in the fields.