In the world of startup funding, convertible notes have become a popular investment tool. They offer a flexible and efficient way for investors to provide capital to early-stage companies. However, navigating the complexities of a convertible note can be challenging without a well-drafted term sheet. In this article, we will provide you with a comprehensive convertible note term sheet template that will help you structure your investment deal.
Table of Contents
- Section 1: Overview
- Section 2: Basic Terms
- Section 3: Conversion Terms
- Section 4: Interest and Maturity
- Section 5: Additional Terms
- Section 6: Signatures
Section 1: Overview
The first section of the convertible note term sheet should provide an overview of the investment. It should include details such as the name of the investor, the name of the company receiving the investment, and the total amount of the investment. Additionally, this section should outline the purpose of the investment and any specific conditions or requirements.
Section 2: Basic Terms
In this section, you will define the basic terms of the convertible note, including the principal amount, the interest rate, and the maturity date. You should also specify any discounts or valuation caps that will apply upon conversion. It is important to clearly outline these terms to ensure both parties are in agreement.
Section 3: Conversion Terms
The conversion terms determine when and how the convertible note will convert into equity. This section should specify the conversion trigger events, such as a qualified financing or a change of control. It should also outline the conversion price and any adjustments that may be made based on subsequent fundraising rounds.
Section 4: Interest and Maturity
Interest and maturity are crucial aspects of a convertible note. This section should outline the interest rate, any applicable compounding, and the maturity date. It is important to clearly define these terms to avoid any confusion or disputes down the line.
Section 5: Additional Terms
In addition to the basic terms, you may want to include additional provisions in your convertible note term sheet. These could include information on voting rights, board representation, and information rights. It is important to carefully consider which additional terms are relevant to your investment deal.
Section 6: Signatures
The final section of the convertible note term sheet should include spaces for both parties to sign and date the document. This serves as a confirmation that both parties agree to the terms outlined in the term sheet. It is important to ensure that all necessary parties sign the document before proceeding with the investment.
In conclusion, a well-drafted convertible note term sheet is essential for structuring a successful investment deal. By using the template provided in this article, you can ensure that all necessary terms and conditions are clearly outlined. Remember to consult with legal professionals to ensure that your specific investment needs are met. Good luck with your investment!