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Founders Pocket Guide: Term Sheets and Preferred Shares,Used
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This easy to follow guide helps startup founders understand the key moving parts of an investment term sheet, and review typical preferred share rights, preferences, and protections. Along the way, we also provide easytofollow examples for the most common calculations related to preferred share equity deals. Expanding on these fundraising concepts, this Founders Pocket Guide helps startup founders learn: What a term sheet is and how to summarize the most important deal terms for your fundraising and startup building goals. How preferred stock shares differ from common shares, with review of how each key preferred share right and preference is tied to the investors shares. Key terms and definitions associated with equity fundraising, such as premoney valuation, founder dilution, and down round. How to decipher legalese associated with a term sheet deal, such as pro rata, fully diluted, and pari passu. The full list of the most common term sheet clauses, their plain English meaning, and their importance to an earlystage investment deal. Simple math for the key term sheet financial aspects, including calculating fully diluted shares outstanding, investor equity ownership percentages, and the impact of option pools on founder dilution. Example exit scenarios, showing how term sheet deal points impact how exit proceeds get divided among investors and founders.
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