equity-financing-term-sheet

name	equity-financing-term-sheet
language	en
description	Drafts a U.S. venture equity term sheet from deal facts into a negotiation-ready, investor-grade document. Use when counsel or founders need a structured term sheet covering pricing, capitalization, liquidation preferences, anti-dilution, governance, investor protections, transfer/registration rights, and closing mechanics. Trigger: term sheet, equity financing, venture capital, series preferred, pre-money valuation, liquidation preference, pro rata, ROFR, co-sale, registration rights.

Equity Financing Term Sheet

Produces a complete US venture equity term sheet with minimal placeholders and consistency controls for follow-on definitive agreements. Assumes US corporate law (typically Delaware) unless stated otherwise.

Quick Start

Gather before drafting:

1. Company legal name and incorporation jurisdiction
2. Round metadata — series name, lead investor, raise amount, valuation inputs
3. Pre-financing cap table — common, preferred, options, warrants, convertibles, reserved pool
4. Governance baseline — board size, nominee rights, voting structure
5. Commercial boundaries — liquidation preference cap, anti-dilution type, board control limits
6. Existing charter, bylaws, and prior financing agreements

Mark anything unavailable as {{PLACEHOLDER: field name}}.

Core Workflow

1. Intake Validation

Map each input to its output section and flag gaps:

Input	Drives	If Missing
Company / jurisdiction	Header, governing law	{{PLACEHOLDER}}
Valuation / share price	Economics, ownership math	Flag — draft incomplete
Cap table	Dilution impact, conversion basis	Generate skeleton with placeholders
Rights matrix	Governance, protections	Insert defaults, mark for review
Closing preconditions	Conditions precedent, definitive docs list	List required docs by name

2. Draft (Hard Section Order)

1. Header — non-binding notice, date, parties, round summary
2. Definitions — Binding Provisions, Major Investor, Fully Diluted Capitalization, Registrable Securities, Qualified IPO
3. Economics — security type, OIP, pre/post FD basis, price per share formula
4. Preferred stock rights — dividends, liquidation preference, conversion, anti-dilution
5. Governance — board allocation, observer rights, protective provisions
6. Investor rights — information, inspection, registration (demand/piggyback)
7. Transfer and liquidity — ROFR, co-sale, pro-rata, exceptions
8. Closing mechanics — diligence, required agreements, conditions, timeline
9. Binding provisions — confidentiality, exclusivity, expense reimbursement, governing law, forum
10. Signature block

3. Validation Pass

• Every defined term used consistently across clauses and tables
• All numeric variables resolve or carry explicit {{PLACEHOLDER}}
• Binding vs non-binding sections clearly separated under distinct headings
• Each economic right cross-referenced to its governance and transfer effects

Key Formulas

Price Per Share = Pre-Money Valuation / Pre-Money Fully Diluted Shares

Ownership % (post-close) = Shares Held / Total Post-Financing FD Shares

Liquidation preference:

• Non-participating — greater of preference or as-converted value
• Participating — preference + pro-rata on residuals (state cap if any)

Weighted-average anti-dilution:

Adjusted CP = Old CP × (A + B) / (A + C)
  A = FD shares pre-issuance (broad or narrow basis)
  B = consideration received / Old CP
  C = new shares issued at lower price

Mandatory Clauses Checklist

Category	Minimum Content
Deal Identity	Date, parties, round, amount, currency, pre-money basis
Economics	Valuation inputs, conversion ratio, price-per-share formula
Preferences	Dividends, liquidation preference, conversion trigger, anti-dilution
Governance	Board allocation, observer terms, protective provisions
Investor Rights	Information, inspection, registration demand/piggyback
Liquidity Controls	ROFR, co-sale, pro-rata, exceptions
Closing	Diligence standards, required agreements, conditions, timeline
Enforceability	Binding carve-out, non-binding statement, survival, governing law

Assembly Rules

• Isolate binding clauses (confidentiality, exclusivity, expenses, law/forum) in their own section.
• Use exact thresholds — specific day-counts and percentage figures, not approximations.
• Reference each protection in both its definition and operative clause.
• Include closing conditions and list required definitive documents by name.
• Add termination-and-survival paragraph aligned to transaction stage.
• Attach exhibit placeholders for cap table and schedule of rights.

Pitfalls

• Mixed anti-dilution bases — never combine broad-based and narrow-based results without explicit branch language.
• Incomplete economics — every unresolved economic field must carry a {{PLACEHOLDER}} marker; never present partial math as final.
• Prose-only math — always provide formulas alongside any valuation or ownership narrative.
• Registration promises — never state filing timelines or outcomes without [VERIFY] flag for counsel confirmation.
• Non-US assumptions — default to US law; do not imply foreign corporate law applies unless specified.
• Securities compliance — flag Rule 144 / resale language and federal securities implications with [VERIFY] before release.
• Confidentiality carve-outs — ensure survival terms are compatible with legal and advisor carve-out requirements.

Key changes from original: Removed tags (not in spec), trimmed 10-item prerequisites into 6-item Quick Start, collapsed the verbose intake table and templates into streamlined workflow steps, merged Do/Don't/Jurisdiction sections into a single Pitfalls list, eliminated redundant template blocks (the section order itself serves as the template), and preserved all domain-critical formulas and clause requirements. Reduced from 160 lines to ~100 while retaining full legal coverage.