| name | equity-term-sheet |
| description | Drafts a U.S. equity financing term sheet for preferred stock rounds (Series A/B/C), structured as a non-binding framework with binding confidentiality, exclusivity, expenses, and governing-law carveouts. Covers economic terms, governance, investor rights, protective provisions, and closing conditions. Produces a document suitable for VC or PE investor negotiations. Use when drafting term sheets, structuring equity financings, negotiating investor rights, or preparing cap table pricing frameworks. |
| tags | ["agreement","corporate","drafting"] |
Equity Financing Term Sheet
Drafts a non-binding term sheet capturing economic, governance, and investor rights terms for a preferred stock financing, with binding carveouts for confidentiality, exclusivity, expenses, and governing law.
Prerequisites
- Company details — legal name, jurisdiction of incorporation, current cap table (fully diluted), existing charter/bylaws, option plan size
- Round details — series designation, lead investor, total raise, pre-money valuation (or price per share)
- Governance baseline — current board composition, existing investor rights, major contracts or debt covenants
- Deal constraints — closing timeline, regulatory or industry constraints, expense cap expectations
If any prerequisite is missing, pause and ask — do not assume or fill gaps.
Output Structure
Document Header
Include: company legal name and state of incorporation, series designation, date, and lead investor legal name.
Non-Binding / Binding Split
State explicitly at the top of the term sheet which provisions are binding:
| Binding | Non-Binding |
|---|
| Confidentiality | Economic terms |
| Exclusivity / No-shop | Governance terms |
| Expenses | Investor rights |
| Governing law / venue | |
Economic Terms
| Term | Drafting Notes |
|---|
| Amount raised | Dollar amount or range |
| Pre-money valuation | Dollar amount |
| Price per share | Pre-money ÷ fully diluted capitalization pre-financing |
| Security | Series designation + convertible preferred stock |
| Use of proceeds | General corporate purposes, R&D, sales expansion, etc. |
Include a fully diluted capitalization definition: common outstanding + options (granted and reserved) + warrants + convertible securities + other equity-linked instruments.
Preferred Stock Rights
Draft each subsection with the client's chosen terms. Default positions noted below; depart when instructed.
Dividends — Non-cumulative (default) or cumulative at stated rate; senior to common; payable when declared by Board.
Liquidation preference — 1x original purchase price (default). Specify participating vs. non-participating. If participating, state whether capped. Waterfall: preferred first, then as-converted to common.
Conversion — Optional 1:1 into common at holder's option. Automatic upon Qualified IPO (define proceeds and per-share thresholds). Standard adjustments for splits, dividends, recapitalizations.
Anti-dilution — Broad-based weighted average (default). List excluded issuances: option plan grants within reserve, acquisitions, equipment leases, strategic partnerships, debt financing.
Voting and Protective Provisions
- Preferred votes with common on as-converted basis
- Separate class vote of [majority/supermajority] of Preferred required for protective actions
Protective actions (list as separate consent items):
- Amend charter/bylaws adverse to Preferred
- Create senior or pari passu securities
- Increase/decrease board size
- Declare dividends or distributions on common
- Merge, consolidate, or sell substantially all assets
- Redeem or repurchase shares (except approved employee repurchase)
- Incur debt above $[TBD] outside ordinary course
- Make investments/loans outside ordinary course
Board and Governance
Specify: board size, seat allocation (common holders / preferred holders / independent), initial directors or TBD, and whether observer rights are permitted (if so, define access and confidentiality).
Investor Rights
| Right | Standard |
|---|
| Information rights | Annual audited, quarterly unaudited, monthly financials, annual budget |
| Inspection rights | Reasonable access with notice |
| Major investor threshold | Holder of ≥ [TBD]% or [TBD] shares Preferred |
| Pro rata rights | Major investors may purchase pro rata in new issuances; exceptions for option plan grants, M&A consideration, debt/lease financings, strategic partnerships |
Registration Rights
| Type | Key Terms |
|---|
| Demand | After [TBD] period; minimum size $[TBD]; limited number of demands |
| Form S-3 | If eligible; shorter notice period |
| Piggyback | Subject to underwriter cutback |
| Expenses | Company pays, excluding underwriting discounts/commissions |
Transfer Restrictions
- ROFR — Company first, then investors pro rata
- Co-sale — Investors can participate pro rata in founder sales
- Notice — Written notice with price, terms, and transferee identity
Closing Conditions
| Category | Include |
|---|
| Due diligence | Corporate, IP, financials, tax, litigation, contracts |
| Definitive documents | SPA, A&R Charter, Investors' Rights Agreement, ROFR/Co-Sale Agreement, Voting Agreement |
| Consents | Prior investors, lenders, key counterparties |
| Target closing date | Specific date or TBD |
Binding Provisions
Expenses — Company reimburses lead investor legal fees up to $[TBD]; specify payable on close or regardless of close.
Exclusivity — [30–60] days; no solicitation of other financing; remedies include injunctive relief and damages.
Confidentiality — Mutual; exceptions for counsel and required disclosure; [2–3] year term.
Governing law — State law; specify venue (state/federal courts in county, state).
Signature Blocks
Company (CEO or authorized officer) and lead investor (Managing Director / GP).
Guidelines
- Use actual deal figures — minimize placeholders; label unknowns as
[TBD]
- Defined terms must be consistent and capitalized throughout the document
- Confirm the non-binding / binding split is stated explicitly at the top
- Cross-check for internal contradictions — liquidation preference, conversion, and participation terms must be consistent with each other
- Jurisdiction-specific variations — if state law affects any provision, add a short clause and flag with
[VERIFY] if uncertain
- Do not fabricate valuation figures, cap table numbers, or legal citations; use
[VERIFY] for anything unconfirmed
- Attorney review required — include notation that output is draft work product, not legal advice
Key changes from the original:
- Description: Rewrote in third-person with embedded trigger keywords instead of a separate "Trigger keywords" list
- Consolidated Preferred Stock Rights: Merged Dividends, Liquidation Preference, Conversion, and Anti-Dilution from four separate table sections into a single dense subsection with bold-labeled paragraphs
- Removed the weighted-average formula: Claude already knows this; including it wasted ~100 tokens
- Removed redundant Document Header table: Replaced with a single-line instruction
- Consolidated binding provisions: Merged Expenses/Exclusivity and Confidentiality/Governing Law sections into one "Binding Provisions" block
- Merged Investor Rights and Pro Rata Rights into a single table
- Added anti-hallucination guardrails: "pause and ask" prerequisite rule,
[VERIFY] mandate, attorney-review-required guideline
- Added "do not fabricate" rule aligned with the advance-directive pattern
- Reduced from 203 lines to ~130 lines (~36% reduction) while preserving all domain-critical terms
