8 Term Sheet Examples Every Founder Must See

Decoding the Deal: Understanding Term Sheets

Term sheets lay the groundwork for any investment deal. This listicle provides eight essential term sheet examples to help founders and investors navigate startup financing. Understanding these examples is crucial for securing favorable terms. We'll cover key documents like the Y Combinator SAFE, NVCA model term sheet, Series Seed and Series A examples, and more. Reviewing these term sheet examples will give you a practical understanding of how deals are structured, from pre-seed to later stage funding. This knowledge is critical for negotiating effectively and protecting your interests.

1. Y Combinator SAFE (Simple Agreement for Future Equity)

The Y Combinator SAFE (Simple Agreement for Future Equity) stands as a prominent example of a streamlined term sheet template used for early-stage startup investments. Designed as a more straightforward alternative to convertible notes, the SAFE is a legally binding agreement granting investors the right to acquire equity in a future priced financing round. Instead of operating as debt, the SAFE acts as a future equity stake, converting into equity upon the occurrence of a specific triggering event, such as a Series A funding round, acquisition, or initial public offering (IPO). This makes it a popular choice among startups and investors looking for a simpler, faster approach to early-stage funding. This approach simplifies the term sheet process, making it an attractive option for both founders and investors navigating early-stage funding. Therefore, its inclusion in this list of term sheet examples is crucial for anyone exploring funding options for their startup.

Key features of the SAFE include the absence of a maturity date or interest accumulation, conversion to equity upon predefined triggering events, and the availability of various versions offering a valuation cap, discount, or both. The current standard utilizes a post-money SAFE structure, further simplifying the agreement. Compared to convertible notes, the SAFE offers a simplified legal framework, reducing complexity and associated costs.

When and Why to Use a SAFE:

SAFETs are best suited for early-stage companies seeking seed funding or bridge financing before a larger priced round. They are particularly useful when a company's valuation is still uncertain or when a quick and simple funding process is desired. This makes it an ideal instrument for early-stage ventures seeking to secure funding quickly without the complexities of a full priced round.

Pros:

• Speed and Cost-Effectiveness: SAFEs are significantly faster and cheaper to implement than traditional equity rounds.
• Deferred Valuation: They eliminate the need to establish a precise company valuation in the early stages.
• Standardized Documentation: The use of standardized templates reduces legal costs and simplifies negotiation.
• Investor-Friendly: Clear conversion mechanisms provide transparency for investors.
• Flexibility: Different SAFE variations (valuation cap, discount, or both) cater to various investment scenarios.

Cons:

• Cap Table Complexity: Multiple SAFEs with varying terms can complicate the cap table.
• Dilution Concerns: Potential dilution can be confusing for founders, especially with multiple SAFEs.
• Reduced Investor Protections: SAFEs offer fewer investor protections than priced rounds.
• Ownership Uncertainty: The eventual ownership percentages can remain uncertain until conversion.

Examples of Successful Implementation:

Several high-profile startups, including Airbnb, Dropbox, and Stripe, utilized SAFEs in their early funding rounds before securing larger venture capital investments. Similarly, Reddit leveraged SAFEs during its initial funding stages. These examples highlight the practicality and effectiveness of SAFEs in supporting the growth of promising startups.

Actionable Tips:

• Valuation Cap: Carefully determine valuation caps based on realistic projections of future valuations.
• Dilution Management: Consider the potential dilution effects when issuing multiple SAFEs.
• Cap Table Management: Maintain meticulous records of all outstanding SAFEs to manage the cap table effectively.
• Clear Communication: Ensure all parties thoroughly understand the conversion mechanisms.
• Standard Templates: Use Y Combinator's official SAFE templates and avoid significant modifications unless absolutely necessary.

Popularized By: Y Combinator, Paul Graham, and Carolynn Levy (YC Partner and creator of the SAFE). You can find the latest SAFE templates and more information on the Y Combinator website.

2. NVCA (National Venture Capital Association) Model Term Sheet

The NVCA (National Venture Capital Association) Model Term Sheet serves as the industry-standard template for venture capital investments in the United States. It provides a comprehensive framework for outlining the terms of an investment, primarily for Series A and subsequent funding rounds. This standardized document aims to streamline negotiations between startups and venture capitalists by offering a balanced starting point that addresses key aspects such as economic rights, control provisions, and investor protections. This makes it one of the most crucial term sheet examples for founders to understand.

The NVCA Model Term Sheet works by laying out the proposed terms of the investment in a structured manner. It covers key areas like the pre-money valuation, the amount of investment, the type of security being issued (typically preferred stock), liquidation preferences, anti-dilution protection, control provisions (including board composition and voting rights), and other crucial investor rights. The model term sheet's modular design allows for alternative provisions, giving parties flexibility in tailoring the agreement to their specific needs.

Features and Benefits:

• Comprehensive Coverage: The NVCA term sheet addresses all the standard terms typically found in a VC financing, reducing the risk of overlooking critical aspects.
• Detailed Provisions: It includes specific clauses related to preferred stock rights, such as liquidation preference, anti-dilution protection, dividend rights, and conversion rights.
• Modular Design: Alternative provisions are presented, allowing for customization and negotiation based on the specific deal dynamics.
• Regular Updates: The NVCA updates the model term sheet periodically to reflect evolving industry trends and legal developments, ensuring it remains relevant and up-to-date.

Pros:

• Reduced Negotiation Friction: Using an industry-standard template minimizes disagreements over basic terms, allowing parties to focus on the most important aspects of the deal.
• Balanced Approach: The NVCA strives to balance the interests of both investors and founders, promoting a fairer negotiation process.
• Annotations and Explanations: The official NVCA model term sheet includes annotations that explain the rationale behind various provisions, aiding understanding.
• Customizable: While standardized, the template is adaptable to specific deal requirements.
• Industry Backing: Backed by leading VC firms and lawyers, the NVCA term sheet offers a degree of credibility and acceptance.

Cons:

• Complexity: The comprehensive nature of the document can be overwhelming for first-time founders.
• Legal Expertise: Modifying certain provisions might require significant legal expertise.
• Extensive Documentation: Fully implementing the term sheet requires substantial legal documentation.
• Potentially Unnecessary Clauses: Early-stage startups might not require all the provisions included in the model term sheet.

Examples of Successful Implementation:

The NVCA Model Term Sheet is the foundation for most institutional VC investments in the US. Benchmark Capital, for example, has used NVCA templates for investments in high-profile companies like Uber and Twitter. Sequoia Capital also regularly bases its term sheets on NVCA models. These examples highlight the widespread adoption and acceptance of the NVCA template.

Tips for Using the NVCA Model Term Sheet:

• Prioritize Economic Terms: Focus initial negotiations on key economic terms such as valuation and the employee option pool.
• Understand Liquidation Preferences: Gain a thorough understanding of liquidation preference multiples and participation rights.
• Scrutinize Protective Provisions: Pay close attention to protective provisions that require investor approval for certain company actions.
• Consider Future Funding Rounds: Structure the current terms with an eye towards future funding rounds.
• Consult Experienced Counsel: Work with experienced legal counsel familiar with NVCA standards.

When and Why to Use this Approach:

The NVCA Model Term Sheet is highly recommended when engaging with institutional venture capital firms. It provides a strong foundation for negotiations and ensures that all crucial aspects of the investment are addressed. While it's not strictly mandatory, its widespread acceptance makes it the de facto standard for Series A and later-stage funding rounds. This term sheet example is a valuable resource for both founders and investors, ensuring a more efficient and transparent investment process. While the NVCA doesn't directly provide a publicly available link to download the term sheet, it can be obtained through legal counsel or various online resources specializing in venture capital.

3. Series Seed Term Sheet

The Series Seed Term Sheet offers a streamlined and simplified approach to early-stage fundraising, making it a valuable term sheet example for startups seeking their initial institutional investment. Designed specifically for seed rounds typically under $2 million, it focuses on the most essential terms, cutting down on the complexity and legal overhead associated with traditional venture financing documents. This makes it an attractive option for both first-time founders and seasoned entrepreneurs looking for a quicker and more efficient fundraising process. This approach is particularly useful when dealing with seed-focused VCs or smaller investment rounds where a full-blown, complex term sheet isn't necessary.

Created by lawyer Ted Wang, the Series Seed Term Sheet is available as an open-source document on GitHub, further reducing the barrier to entry for startups. It prioritizes key elements like price, basic investor rights, and voting agreements, while omitting the more intricate provisions often found in later-stage financing term sheets. This results in a significantly shorter document—typically under 10 pages compared to the 100+ pages common in traditional Series A or B financings. This brevity contributes to its speed and efficiency.

Features and Benefits:

• Streamlined and Essential Terms: Focuses on core deal points, eliminating unnecessary complexity.
• Open-Source Format: Accessible and readily available on GitHub, simplifying access and usage.
• Cost-Effective: Drastically reduces legal fees, potentially saving $15,000-30,000 compared to traditional term sheets.
• Faster Execution: Streamlined terms facilitate faster closing, taking days instead of weeks.
• Beginner-Friendly: Simple language and structure make it easy for first-time founders to understand.
• Balanced Approach: Protects the interests of both founders and investors.
• Compatible with Future Rounds: Designed to align with standard Series A terms, ensuring a smoother transition.

Pros and Cons:

Pros:

• Significantly lower legal costs.
• Faster and more efficient fundraising process.
• Easier to understand and negotiate.
• Suitable for early-stage companies with simpler cap tables.

Cons:

• Offers less comprehensive investor protections than traditional term sheets.
• Some terms may require renegotiation during Series A financing.
• Limited customization options due to its standardized nature.
• Not ideal for complex cap tables or investor structures.

Examples of Successful Implementation:

• First Round Capital has utilized the Series Seed documentation for many of their early-stage investments.
• Pinterest's seed round famously employed the Series Seed structure.
• Numerous Y Combinator companies have adopted the Series Seed for their first priced rounds.

Actionable Tips:

• Consider using the Series Seed Term Sheet for seed rounds between $500,000 and $2 million with professional investors.
• Avoid modifying the core template unless absolutely necessary to maintain its intended simplicity.
• Understand the conversion mechanisms and how they will affect future fundraising rounds.
• Carefully consider and discuss board composition, as it is often a crucial negotiation point.
• Understand the implications of pro-rata rights for subsequent fundraising efforts.

Popularized By:

• Ted Wang (former Fenwick & West partner, now at Cowboy Ventures)
• First Round Capital
• Marc Andreessen (early advocate)
• Seed-focused VCs like Floodgate and SV Angel

The Series Seed Term Sheet provides a powerful example of how streamlining legal documentation can significantly benefit early-stage startups. By focusing on essential terms and simplifying the fundraising process, it empowers founders to secure funding quickly and efficiently, allowing them to focus on building their businesses. This makes it a valuable tool in the world of term sheet examples and a strong choice for early-stage financing.

4. Techstars Model Seed Funding Documents

Navigating the complexities of a term sheet can be daunting for early-stage startups. If you're looking for robust, founder-friendly term sheet examples, the Techstars Model Seed Funding Documents deserve serious consideration. This comprehensive set of templates provides a solid foundation for seed-stage fundraising, particularly for startups graduating from accelerator programs. They offer a practical approach reflecting standard market terms while prioritizing a balanced relationship between founders and investors. This makes them a valuable resource for anyone searching for reliable term sheet examples.

These documents aren’t simply isolated term sheets; they provide a complete suite of templates, including stock purchase agreements and related documents for various funding structures like convertible notes, SAFEs (Simple Agreement for Future Equity), and priced equity rounds. This modular approach gives founders flexibility in choosing the investment vehicle that best suits their needs.

How They Work:

The Techstars Model Seed Funding Documents function as a blueprint for your seed round. They offer pre-written clauses and terms covering crucial aspects like valuation, equity distribution, liquidation preferences, investor rights, and control provisions. By using these templates, founders can significantly reduce the time and legal costs associated with drafting these documents from scratch.

Examples of Successful Implementation:

The efficacy of these documents is demonstrated by their widespread adoption within the Techstars network. Thousands of Techstars accelerator graduates have used these documents to secure seed funding. Success stories include SendGrid, which leveraged Techstars documents for its early funding rounds before being acquired by Twilio for $3 billion, and DigitalOcean, which also based its initial funding rounds on these templates. These real-world examples highlight the documents' practicality and acceptance within the investment community.

Actionable Tips for Readers:

• Understand the provisions: Utilize the accompanying explanatory notes to fully grasp the purpose and implications of each provision in the documents.
• Choose the right investment structure: Carefully consider whether a convertible note, SAFE, or priced equity round aligns best with your fundraising goals and stage of development.
• Focus on key terms: Pay close attention to valuation caps, discount rates (for convertible instruments), information rights, and board observer provisions. These terms can significantly impact your company's future.
• Seek expert advice: Consult with legal counsel experienced with Techstars documentation to ensure the terms are tailored to your specific circumstances.

When and Why to Use This Approach:

The Techstars Model Seed Funding Documents are particularly well-suited for post-accelerator seed rounds. Their founder-friendly nature and streamlined approach make them ideal for startups seeking a quick and efficient fundraising process. They also benefit from a strong reputation among angel investors and seed funds, which can facilitate smoother negotiations.

Pros:

• Designed specifically for post-accelerator seed rounds.
• Reduces legal costs through standardization.
• Strong reputation amongst angel investors and seed funds.
• Compatible with follow-on funding structures.
• Community-vetted terms reduce negotiation friction.
• Regularly updated to reflect current market standards.
• Free public access with detailed explanations.

Cons:

• May still require customization for specific deal terms.
• Less suitable for larger institutional rounds ($5M+).
• Some provisions may favor Techstars network investors.
• Not as widely recognized as Y Combinator or NVCA documents.

Popularized By:

David Cohen (Techstars co-founder), Brad Feld (Foundry Group and Techstars co-founder), Techstars accelerator network, Cooley LLP (legal partner)

While the Techstars documents offer numerous benefits, they may not be a one-size-fits-all solution. Larger institutional rounds, for example, might necessitate more tailored agreements. However, for many early-stage startups, especially those within the Techstars ecosystem, these documents provide invaluable term sheet examples and a strong foundation for a successful seed round. You can access these documents on the Techstars website.

5. 500 Startups KISS (Keep It Simple Security)

Looking for term sheet examples? The 500 Startups KISS (Keep It Simple Security) deserves a spot on your list. It offers a compelling alternative to traditional convertible notes and SAFEs, providing a standardized, yet flexible, approach to early-stage funding. This makes it a valuable tool for both founders and investors navigating the complexities of term sheets.

The KISS, developed by 500 Startups and their legal team, aims to simplify the investment process while still offering robust investor protections. Instead of grappling with lengthy, complicated agreements, founders can utilize the KISS to streamline fundraising and focus on building their businesses. It achieves this balance through two primary versions:

• KISS Debt: This version functions like a loan, complete with interest and a maturity date. If the company raises a qualified equity financing round before maturity, the debt converts into equity at a discounted price. If no round occurs before maturity, the company owes the investor the principal plus interest.

• KISS Equity: This version is more akin to a SAFE. It doesn’t include interest or a maturity date, and automatically converts into equity upon a qualified financing round. This provides a simpler, more straightforward approach for both founders and investors.

Key Features of the 500 Startups KISS:

• Two Versions (Debt and Equity): Offers flexibility for different investment scenarios and investor preferences.
• Most-Favored Nation (MFN) Provisions: Protects investors by ensuring they receive terms at least as favorable as any offered to subsequent investors in similar rounds.
• Standard Information Rights and Participation Rights: Provides investors with access to company information and the right to participate in future rounds.
• Clear Conversion Mechanisms: Defines how the KISS converts into equity in future rounds, eliminating ambiguity and potential disputes.
• Detailed Event-Specific Provisions: Covers scenarios like acquisitions and dissolutions, outlining how investor interests are handled.
• Open-Source Documentation: Makes the documents readily accessible and transparent, further reducing legal costs and complexity.

Pros:

• Balanced Protection and Simplicity: Offers more investor protections than SAFEs while being simpler than full equity rounds.
• Reduced Legal Costs and Negotiation Time: Standardized terms streamline the legal process.
• Flexible Structure: Accommodates different investor preferences with the debt and equity options.
• International Compatibility: Suited for international investment structures, allowing for broader investor participation.

Cons:

• Slightly More Complex than SAFEs: While simpler than full equity rounds, it does introduce some additional complexities compared to SAFEs.
• Potential for Unnecessary Provisions: Some provisions may be unnecessary for very early-stage investments.
• Less Widely Adopted than SAFEs or Convertible Notes: This can sometimes lead to investor unfamiliarity.
• Cap Table Complications: Multiple KISS documents with differing terms can create complexity in managing the company's capitalization table.

Examples of KISS Implementation:

• Companies participating in 500 Startups' global accelerator programs.
• Credit Karma utilized KISS documents in its early rounds before its acquisition by Intuit.
• Numerous international startups leverage KISS for US investor participation.

Tips for Using 500 Startups KISS:

• Choose the Right Version: Select the Debt or Equity version based on investor preferences, company stage, and anticipated time to the next funding round.
• Pay Attention to Key Provisions: Carefully review maturity dates (for Debt KISS), automatic conversion provisions, and pro-rata rights.
• Understand MFN Implications: Consider the implications of MFN clauses when raising capital from multiple sources.
• Consult Legal Counsel: Seek advice from counsel experienced with KISS documents, especially before making any modifications.

The 500 Startups KISS offers a viable alternative within the landscape of term sheet examples. Its blend of simplicity, flexibility, and investor protection makes it a valuable tool for startups seeking early-stage funding. While it may not be as widely adopted as SAFEs or convertible notes, its standardized structure and clear terms can significantly streamline the fundraising process, allowing founders to focus on what truly matters – building their business. While a website dedicated solely to the KISS documentation isn't available, resources can often be found on 500 Startups' website and through various legal resources online. Searching for “500 Startups KISS documents” should provide helpful results.

6. Founder Institute Plain Preferred Term Sheet

The Founder Institute Plain Preferred Term Sheet provides a founder-friendly approach to navigating the often-complex world of investment agreements. Specifically designed for early-stage companies securing their first institutional funding, this term sheet example prioritizes simplicity and transparency, minimizing legal jargon and focusing on essential provisions. This makes it ideal for pre-seed and seed rounds typically up to $2 million. It aims to streamline the fundraising process, reduce legal costs, and ensure founders retain a significant stake and control in their company.

This term sheet example employs a single class of preferred stock with a 1x non-participating liquidation preference. This means that in a liquidity event (such as an acquisition or IPO), preferred stockholders receive their initial investment back first, before common stockholders (including founders) share in the remaining proceeds. The "non-participating" aspect is crucial, as it prevents preferred stockholders from also receiving a share of the common stock proceeds after their initial investment is returned. The term sheet further simplifies protective provisions, focusing on essential investor rights without adding overly burdensome restrictions on the founders' operational flexibility. It includes standard conversion provisions with broad-based weighted average anti-dilution protection, ensuring that investors' equity stake is protected in future down rounds. Board composition requirements are also minimized, aiming to keep decision-making power predominantly with the founders.

Features and Benefits:

• Single Class of Preferred Stock with 1x Non-Participating Liquidation Preference: Provides investors with a return on their investment before common stockholders but doesn't allow them to double-dip.
• Simplified Protective Provisions: Focuses on essential investor rights without overly restricting founders.
• Standard Conversion Provisions with Broad-Based Weighted Average Anti-Dilution: Protects investors' equity stake in down rounds.
• Minimal Board Composition Requirements: Enables founders to retain greater control over company governance.
• Plain Language Format: Easy to understand for first-time founders.

Pros:

• Extremely founder-friendly: Compared to standard industry term sheets, this provides more favorable terms for founders.
• Reduces legal complexity and costs: The simplified nature of the document reduces the need for extensive legal review.
• Transparent provisions: Avoids hidden investor advantages and promotes a more balanced agreement.
• Designed for future funding rounds: Aims to make future fundraising smoother.
• Free public access with educational materials: Makes the resource widely accessible to entrepreneurs.

Cons:

• May lack protections sophisticated investors expect: Some investors, especially VCs, may find the provisions insufficient.
• Could require renegotiation for Series A: More complex terms might be needed for later-stage funding.
• Less comprehensive than NVCA or other standard documents: Covers fewer contingencies than more traditional term sheets.
• Some investors may resist the simplified structure: Not all investors are familiar with or willing to accept this format.

Examples:

• Hundreds of Founder Institute graduate companies have utilized this term sheet.
• Early funding rounds of companies like Udemy utilized similar simplified preferred structures.
• Numerous international startups seeking US investment have adopted this template.

Tips:

• Ideal for first-time founders raising from angels and seed funds: A perfect starting point for early-stage fundraising.
• Focus on negotiating valuation rather than complex terms: Simplify the process by prioritizing valuation discussions.
• Understand the 1x liquidation preference and its implications: Ensure you grasp the impact on potential returns for founders and investors.
• Consider whether the simplified board structure meets governance needs: Balance founder control with the benefits of experienced board members.
• Use as a starting point but be willing to add minimal protections for quality investors: Flexibility can attract better investors while preserving founder-friendly terms.

Popularized By: Adeo Ressi (Founder Institute CEO), Jonathan Greechan (Founder Institute Partner), Wilson Sonsini Goodrich & Rosati (legal partner), Angel investors affiliated with Founder Institute mentor network.

This term sheet example deserves its place in this list because it provides a valuable alternative to more complex and investor-heavy agreements. It empowers founders, particularly first-timers, to navigate early-stage fundraising with confidence and secure funding on more equitable terms. While not suitable for every situation, the Founder Institute Plain Preferred Term Sheet offers a strong foundation for building a successful investor-founder relationship.

7. Series A Term Sheet by Gunderson Dettmer

The Gunderson Dettmer Series A Term Sheet stands as a cornerstone document in the venture capital ecosystem, frequently serving as the foundation for term sheet examples used in Series A financing rounds. Developed by Gunderson Dettmer, a prominent Silicon Valley law firm specializing in venture capital transactions, this template offers a comprehensive and widely accepted framework for negotiating investments typically ranging from $3 million to $15 million. Its prevalence in the tech sector makes it essential knowledge for founders and investors alike.

This term sheet outlines the key terms and conditions of the investment, balancing the interests of both founders and investors. It delves into specifics regarding economic rights, corporate governance, and investor protections. This detailed approach helps ensure all parties are aligned before proceeding to the more complex and costly final legal agreements.

Features and Benefits:

• Detailed provisions for preferred stock: Typically includes a 1x liquidation preference, ensuring investors recoup their investment before common stockholders in a liquidity event.
• Comprehensive investor rights: Covers information access, registration rights, and other provisions designed to keep investors informed and involved.
• Voting rights and protective provisions: Defines voting rights and outlines protective provisions requiring investor approval for major corporate decisions, such as mergers and acquisitions.
• Anti-dilution protections: Includes standard anti-dilution protection mechanisms (often broad-based weighted average) with carve-outs to protect investors from equity dilution in down rounds.
• Board composition frameworks: Establishes the structure of the board of directors, outlining investor representation and influence in company decision-making.

Pros:

• Comprehensive coverage: Addresses all standard Series A terms, reducing ambiguity and potential disputes.
• Reflects market standards: Aligns with current market practices accepted by leading venture capital firms.
• Includes annotations: Offers valuable explanations of key provisions and common negotiation points.
• Regularly updated: Evolves to reflect current market trends and legal developments, ensuring its continued relevance.
• Trusted by industry leaders: Used by top-tier venture firms and startups, signifying its widespread acceptance and credibility.

Cons:

• Complexity: Requires experienced legal counsel to navigate and interpret its intricacies.
• Legal costs: Full implementation involving legal review and negotiation can incur significant costs ($30,000-$50,000).
• Investor-favoring provisions: May include provisions that are more advantageous to institutional investors.
• Overwhelming for first-timers: Can be daunting for founders navigating their first institutional funding round.

Examples of Successful Implementation:

The Gunderson Dettmer template, or variations of it, has been instrumental in numerous successful funding rounds. While specific term sheets are generally confidential, it’s widely understood that companies like Slack and Robinhood utilized similar structures in their early stages, paving the way for their impressive growth. It's also a common template for investments by prominent firms like Sequoia and Accel, further solidifying its position as an industry standard.

Actionable Tips:

• Focus negotiations on key areas: Prioritize economics (valuation, option pool) and board control during negotiations.
• Understand key provisions: Grasp the implications of participation rights, liquidation preferences, and anti-dilution protection.
• Scrutinize protective provisions: Carefully review provisions that require investor approval for specific actions.
• Consider future fundraising: Anticipate future funding rounds when negotiating anti-dilution provisions.
• Seek expert advice: Engage experienced legal counsel specializing in venture financing.

When and Why to Use This Approach:

The Gunderson Dettmer Series A Term Sheet is highly relevant for companies raising a Series A round, particularly within the technology sector. Its comprehensive nature makes it suitable for complex transactions involving institutional investors. While other term sheet examples exist, this template provides a strong starting point and ensures that crucial aspects of the investment are addressed. It’s a valuable resource for founders seeking to understand the intricacies of Series A financing and negotiate favorable terms.

While a direct link to the template isn't publicly available due to its proprietary nature, resources and analyses related to the Gunderson Dettmer term sheet can be found through various legal and venture capital publications. Its influence on the venture capital landscape is undeniable, making it a crucial element to understand for anyone involved in Series A financing. This term sheet deserves its place on this list due to its widespread adoption, comprehensive coverage, and influence on market standards. It serves as a valuable reference point for both founders and investors navigating the complexities of Series A funding rounds.

8. Convertible Note Term Sheet by Cooley LLP

Looking for term sheet examples? The Convertible Note Term Sheet by Cooley LLP is a frequently used template, especially within the startup ecosystem, and provides a robust framework for securing bridge financing. This term sheet outlines the terms of a convertible note, a form of debt that converts into equity at a later date, usually during a priced equity round. Developed by Cooley LLP, a prominent Silicon Valley law firm, this document offers a balanced approach for both startups and investors involved in early-stage funding, typically ranging from $500,000 to $3 million. Its prevalence makes it an important inclusion in any discussion of term sheet examples.

How it Works:

A convertible note operates as a loan with the added feature of converting into equity. It allows startups to raise capital quickly without immediately establishing a valuation. Instead, the note carries an interest rate (typically 4-8% annually) and a maturity date (usually 18-24 months). Upon a qualified financing event, such as a Series A round, the note converts into equity at a predetermined discount (often 15-25%) to the price of the new preferred stock. A valuation cap is often included, protecting investors from excessive dilution if the company’s valuation significantly increases before the conversion event.

Features and Benefits:

• Standard Interest Rates: Typically between 4-8% per annum, accruing over the life of the loan.
• Maturity Date Provisions: Defines the period (usually 18-24 months) before the note must be repaid or converted.
• Conversion Discount: Provides investors a discount (15-25%) on the share price during the conversion event.
• Optional Valuation Cap: Protects investor upside by setting a maximum valuation for conversion purposes.
• Default and Remedy Provisions: Outlines procedures in case of non-payment or breach of contract.
• Qualified Financing Thresholds: Specifies the size of the next equity round that triggers automatic conversion.

Pros:

• Defers Valuation: Postpones formal valuation discussions to a later, more mature stage.
• Speed and Cost-Effectiveness: Faster and less expensive ($10,000-$15,000) than a priced equity round ($30,000-$50,000).
• Widely Accepted: A familiar structure recognized by most angel and seed investors.
• Investor Protection: Debt position provides some level of security for investors.
• Flexibility: Terms adaptable to different company stages and investor needs.

Cons:

• Interest Dilution: Accruing interest increases the loan amount, potentially leading to greater dilution upon conversion.
• Maturity Date Pressure: Creates a timeline for the startup to either repay the loan or raise further funding.
• Cap Table Complexity: Multiple convertible notes can complicate the capitalization table.
• Tax Implications: More complex tax consequences compared to equity or SAFEs.
• Default Risk: Possibility of default if the company cannot repay or raise subsequent funding.

Examples of Successful Implementation:

The Cooley Convertible Note has been instrumental in the early stages of numerous successful companies. Before their large equity rounds, companies like Square and Peloton utilized convertible notes to secure bridge financing, demonstrating the widespread adoption and effectiveness of this approach. Thousands of other startups have used this method for bridge rounds.

Tips for Effective Use:

• Realistic Valuation Cap: Set a valuation cap based on realistic growth projections and market conditions.
• Maturity Date Extensions: Consider including provisions for maturity date extensions in the initial terms.
• Majority Noteholder Provisions: Include clauses granting amendment rights to a majority of note holders.
• Transparency with Investors: Be open about existing convertible notes with new investors during subsequent funding rounds.
• Interest Tracking: Carefully track accrued interest for accurate cap table management.
• Sweeteners: Offer additional incentives like warrants to attract strategic investors.

Popularized By:

Cooley LLP’s contribution to this term sheet’s structure made it a standard. Its use was further amplified by Y Combinator (before they developed the SAFE), influential angel investors like Ron Conway and Naval Ravikant, and early-stage VCs such as First Round Capital and SV Angel. This widespread adoption solidifies its position as a key example within the landscape of term sheet examples.

When and Why to Use This Approach:

Convertible notes are best suited for early-stage companies requiring bridge financing before a priced round. They are ideal when a company has demonstrated traction but isn't ready for a full-fledged valuation process. The relative speed and simplicity of a convertible note makes it an attractive option for both founders seeking quick access to capital and investors looking for a straightforward entry point into promising ventures.

8-Term Sheet Formats Comparison

Securing Your Future: Choosing the Right Term Sheet

This article has explored a range of term sheet examples, from the Y Combinator SAFE and 500 Startups KISS to the more complex Series A and convertible note term sheets from established legal firms. Each document, whether it's the NVCA model term sheet or the Techstars model seed funding documents, serves a specific purpose and caters to various funding stages and investor preferences. Mastering these nuances is critical for any founder embarking on the fundraising journey. Understanding the differences between a Series Seed term sheet and, later, a Series A term sheet by Gunderson Dettmer, for example, allows you to negotiate from a position of strength and secure the best possible terms for your startup.

One of the most important takeaways is that a term sheet is not just a legal formality; it's a foundational agreement that shapes your company's future. It dictates ownership, control, and the overall direction of your venture. Before entering due diligence, it’s essential to prepare a comprehensive confidential information memorandum (CIM). As Acquire.com highlights in their guide on “Writing a Deal-Winning CIM: What Every Founder Should Know,” this document is crucial for showcasing your startup’s potential to investors. By carefully considering each term sheet example and understanding its implications, you can lay the groundwork for a successful funding round and a thriving future for your business.

A well-negotiated term sheet, based on a solid understanding of these examples, is a crucial step towards securing the resources and partnerships you need to scale your vision. Choosing the right term sheet empowers you to build a future where your startup not only survives but thrives. Ready to connect with potential co-founders and advisors who can help you navigate term sheets and fundraising? Explore the resources available on IndieMerger and build a powerful network to support your startup's journey.