Funding Term Sheet Template for Saudi Arabia

What is a Funding Term Sheet?

The Funding Term Sheet is a crucial document in Saudi Arabia's investment landscape, typically used during the preliminary stages of investment negotiations between companies seeking funding and potential investors. It serves as a blueprint for the final investment agreements, outlining key commercial and legal terms including valuation, investment structure, governance rights, and investor protections. While primarily non-binding, it provides a clear framework for subsequent detailed documentation and due diligence. The document must align with Saudi Arabian regulations, including the Companies Law, Capital Market Authority regulations, and where applicable, foreign investment rules. It's particularly important in the context of Saudi Arabia's Vision 2030 initiative, which encourages private sector investment and economic diversification. The term sheet should be drafted with consideration of both local legal requirements and international investment standards, making it suitable for both domestic and foreign investors.

About the Funding Term Sheet

A funding term sheet is your roadmap to securing investment in Saudi Arabia. This preliminary document outlines the essential commercial and legal framework for investment transactions, serving as the foundation for detailed investment agreements. While typically non-binding, it establishes critical terms that will govern your relationship with investors and must comply with Saudi Arabian legal requirements.

When do you need this document?

You need a funding term sheet when raising capital for your Saudi company, whether from venture capital firms, angel investors, or sovereign wealth funds. It's essential during Series A, B, or C funding rounds, when bringing in strategic corporate investors, or when existing shareholders want to sell their stakes. The document is particularly crucial if you're a startup seeking investment under Saudi Arabia's Vision 2030 initiatives or if foreign investors are participating in your funding round. You'll also need it when restructuring ownership, converting debt to equity, or preparing for eventual IPO on the Saudi Stock Exchange (Tadawul).

Key legal considerations

Your funding term sheet must address several critical legal elements under Saudi law. The pre-money valuation and post-investment ownership structure must comply with the Companies Law (2015), particularly regarding share classes and shareholder rights. Include comprehensive investor protection clauses such as anti-dilution provisions, liquidation preferences, and board representation rights. Address governance matters including voting rights, information rights, and consent requirements for major corporate decisions. Consider tag-along and drag-along rights to protect both minority and majority shareholders. The term sheet should specify any employee stock option pools and their impact on ownership calculations. Include provisions for future funding rounds and how they affect existing investor rights.

Legal requirements in Saudi Arabia

Saudi Arabian funding term sheets must comply with multiple regulatory frameworks. Under the Companies Law (2015), ensure proper corporate governance structures and shareholder protection mechanisms. The Capital Market Law (2003) governs equity securities and share issuances, requiring compliance with disclosure and registration requirements where applicable. If foreign investors are involved, adhere to the Foreign Investment Law (2000) and obtain necessary approvals from the Saudi Arabian General Investment Authority (SAGIA). Include SAMA (Saudi Arabian Monetary Authority) compliance provisions if your company operates in regulated financial sectors. Address Qualified Foreign Financial Institutions (QFI) rules if applicable to your investor base. Ensure anti-money laundering compliance and beneficial ownership disclosure requirements. The term sheet must also consider Zakat obligations and tax implications under Saudi tax law, particularly for profit-sharing arrangements and capital gains treatment.