The Convertible Equity Term Sheet is commonly used in early-stage funding scenarios where determining a company's immediate valuation is challenging. Under English and Welsh law, this document provides a foundation for investment that converts to equity upon triggering events, typically a qualified funding round or exit. It offers investors potential upside through discount rates and valuation caps while providing companies with immediate capital without complex equity negotiations. The document includes essential terms such as investment amount, conversion mechanics, investor rights, and protection provisions.
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1. Introduction: Company information and current capitalization details
2. Investment Amount: Details of the proposed investment and valuation terms
3. Conversion Rights: Terms and conditions for equity conversion, including trigger events
4. Valuation Cap: Maximum valuation for conversion purposes and calculation methodology
5. Discount Rate: Specified discount on conversion price relative to qualifying round
1. Pro-rata Rights: Right to participate in future funding rounds, typically included for larger investors
2. Information Rights: Investor's rights to company information and financial reports, recommended for investments above certain threshold
3. Board Rights: Observer or voting rights on the board, typically included for strategic or lead investors
4. Most Favored Nation: Protection ensuring investor receives best terms offered to other investors, optional for sophisticated investors
1. Schedule 1 - Cap Table: Current shareholding structure and ownership breakdown
2. Schedule 2 - Key Terms Definition: Detailed definitions of technical terms used in the term sheet
3. Schedule 3 - Conversion Mechanics: Detailed explanation of conversion calculations and examples
4. Schedule 4 - Company Information: Key company details including registration information and current directors
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