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What is an Ordinary Shares Investment Term Sheet?

An Ordinary Shares Investment Term Sheet is a foundational document that outlines the key terms agreed upon between a company seeking investment and potential investors to issue new ordinary shares. 

An Ordinary Shares Investment Term Sheet is a non-binding document that serves as a preliminary agreement to facilitate discussion and negotiation, setting the stage for more formal, legally binding documents to follow.

Why use an Ordinary Shares Investment Term Sheet?

The term sheet plays a crucial role in investment deals by clearly summarising the significant aspects of the potential investment agreement. Its primary functions include:

  • Ensuring mutual understanding and agreement on significant deal points between the company and investors.
  • Reducing the likelihood of misunderstandings or disputes.
  • Minimising premature legal expenses by outlining the deal’s framework before drafting binding agreements.

Key components of an Ordinary Shares Investment Term Sheet

A comprehensive term sheet should include:

  • Company Information: A brief overview of the company.
  • Founder Details: Identification of the company’s founders.
  • Investment Amount: The proposed investment figure and investor commitments.
  • Company Valuation: Pre-money valuation of the company.
  • Share Details: Information on the new shares to be issued, such as the number, class, type (equity or preference), stake percentage, and voting rights.
  • Subscription Price: Price per share for the new issue.
  • Timeline: Estimated date of investment completion.
  • Capitalisation Tables: Pre and post-money valuation charts.
  • Investor Rights: Rights being granted to the investors.
  • Founder Obligations: Duties and responsibilities of the founders.
  • Employee Share Option Plan: Details on whether a share option plan for employees will be established.
  • Board Representation: Information on whether investors can nominate board directors.
  • Reserved Matters: Topics requiring board or shareholder approval.
  • Confidentiality and Exclusivity: Terms concerning the privacy of discussions and any exclusive negotiation rights. Consider a Non-Disclosure Agreement to secure confidentiality.

Is an Ordinary Shares Investment Term Sheet legally binding?

While the term sheet itself is not legally binding, except for confidentiality and exclusivity clauses, it sets the tone for honour-based negotiations. A more detailed Ordinary Shares Investment Agreement will later formalise the binding terms of the investment.

Next steps after signing an Ordinary Shares Investment Term Sheet

Following the term sheet’s signing, the investors typically conduct due diligence. The outcomes of this process led to the finalisation of the investment deal, including drafting the Ordinary Shares Investment Agreement and a Shareholders Agreement to detail new share issuance, shareholder rights, and other pertinent matters.

Who prepares the Term Sheet?

Typically, the investor prepares the term sheet to outline their proposed investment terms. It marks the beginning of formal negotiations towards an investment deal.

For further information on creating secure and comprehensive employment agreements for your team members, consider exploring an Employment Contract. Additionally, a Memorandum of Understanding could provide a structured yet flexible framework to outline the collaboration’s intent for partnerships or collaborative projects initiated as part of the investment process.

Ordinary Shares Investment Term Sheet Template

An Ordinary Shares Investment Term Sheet is an essential initial capital-raising document. It lays the groundwork for negotiations, ensuring that the company’s founders and potential investors have a clear, agreed-upon basis for formalising the investment.

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