By Patrick Roux is a Senior Corporate Associate at Kemp Little
We often see instances of founders rushing into their first investment round without enough deliberation over the term sheets proposed by potential investors.
A term sheet is the outline agreement between an investor and a company and its founders on the key financial and legal terms of an investment. Whilst it is not a binding agreement (in most respects), it is important for a founder to understand and be comfortable with the contents of a term sheet before signing it. However; a start-up’s need for cash runway can cloud judgements.
The reality is that a lot of VC funds will apply a ‘one size fits all’ approach which doesn’t take into account the stage or size of the individual businesses they invest in. For a founder who may be viewing their first ever term sheet, they may not be able to spot red flags easily and will trust that what they’re seeing is legitimate and standard. ...