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Term Paper Of Venture Capital

4236 words - 17 pages

Strictly private and confidential

Not to be disclosed or distributed to third parties

Draft ●

Indicative Term Sheet

[For use on Series A round]

We are pleased to present our proposal for an investment in ● (the "Company").

Investment

1 You have told us that the proposed business plan calls for an equity injection of £● . Of this amount, funds managed by us (the "Funds") will provide £● alongside investment by other venture capital funds or financial institutions (together the "Investors"). We will act as lead equity investor.

2 The investment will be at a fully diluted pre-money valuation of £● , including employee share options (both granted or committed) ...view middle of the document...

]

5 The proceeds from the investment must be used for the Company's working capital requirements [in particular ●].

Conditions of investment

1 The investment is conditional on negotiation of definitive legal documents, satisfactory completion of due diligence and approval by our Investment Committee.

2 Satisfactory completion of due diligence will include:

1 Conclusion of our commercial due diligence [including ● ]

2 References from customers and partners

3 Market and technology review by an independent third party

4 Management references

5 Review of current trading and forecasts for the next ● – ● months

6 Review of existing and/or proposed management service contracts

7 Review of the Company's financial history and current financial situation by our advisors including, a review of the last set of audited accounts and the latest set of monthly management accounts prior to completion of our investment

8 Full legal review of the Company by our lawyers, focusing particularly on ownership of all necessary intellectual property and benefit of all key commercial contracts

9 [VCT tax clearance from the Inland Revenue]

3 The Company must secure institutional co-investment of at least £● on identical terms from other venture capital funds or similar organisations acceptable to us. We will not underwrite the total funding sought nor guarantee the securing of co-investors.

4 The expansion of the share option pool [prior to the investment] to represent ●% of the equity [pre-funding]/[post-funding] on a fully diluted basis. These extra share options will be reserved for new employees and will have an exercise price equal to the Original Issue Price (see paragraph 1.3) [or may be exercised at a discount to that price subject to consent from the relevant tax authority and the Investor Director (see paragraph 4.3)]. Following grant, these options will vest quarterly over a ● year period, [subject to a minimum employment of ● year].

5 The investment must comply with the money laundering regulations and rules of the Financial Services Authority.

6 [Appendix 7 sets out the performance milestones which must be satisfied within the periods stated before the Second Tranche can be called.]

[Good leaver/bad leaver provisions

Ordinary Shares in the Company (the "Ordinary Shares") held by [INSERT NAMES OF FOUNDERS] (the "Founders") [and [INSERT NAMES OF RELEVANT EMPLOYEES]] will be subject to [vesting rights] [and good leaver/bad leaver provisions] as summarised in Appendix 3.]

Terms of investment

1 The Company and the [INSERT NAMES OF RELEVANT MANAGERS] (the "Managers") will provide the Investors with customary representations and warranties examples of which are set out in Appendix 4 and the Managers will provide the Investors with customary non-competition, non-solicitation and confidentiality undertakings.

2 The Board will have a maximum...

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