Investor term sheet
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What's an investor term sheet and when do you need it?
Use this template to set out the high-level terms of an investment that you have agreed with an investor. It is generally not a legally binding agreement, except in relation to the provisions on confidentiality contained within it. The objective is to agree these terms and they will then form the basis of the detail in the legally binding shareholder agreement that will follow afterwards.
Term sheets can be very useful in convincing other target investors to contribute to your fundraising efforts. Being able to demonstrate that you have agreed terms with a lead investor, who represents a substantial chunk of your funding target, can help to get faster commitment from others whom you’d like to come on board in the same round. It may also assist you to agree other types of relationships since it helps to evidence that there is credible investor confidence in you.
Our template is drafted on the basis that you will be using this term sheet for one investor only, or one investor at a time. If you are looking for a template that will accommodate more than one investor at the same time, please let us know and we will connect you with our experts so that they can help you to tailor one to suit your needs. There are a number of options and considerations that they will want to discuss with you.
You may find that more experienced and certainly institutional investors have their own terms sheets and will prefer you to agree to their format.
The term sheet template covers key aspects of the deal you’ve agreed in principle with your investor, including the amount of the investment, when and how it will be paid to your business, and what you will be offering in return (type of shares, nominal value, premium paid for them, the % equity/ownership stake that they represent), whether SEIS or EIS tax relief is available on those shares, what the investment must be used for (investors may set conditions around this), whether there are other conditions attached, e.g. you must give the investor a board position, report regularly, etc.
What else might you need?
Alongside any investor term sheet, you should be considering the right shareholder agreement for your circumstances. We have shareholder agreement templates to cover those. You may well need to revisit the wording of your articles of association (the legal rule book of your company), to ensure that what you’re agreeing with your new investor(s) is currently permitted by those articles. If not, you’ll need to propose and have passed a resolution (meaning you’ll need to get shareholder consent), to change the wording and introduce the permissions you require.
You’ll need board minutes connected with this fundraising activity. We have appropriate templates for those.
Take a look also at our guides to what investors look for and on issuing and allotting shares. For more background on the valuable tax reliefs that you may be able to offer your new investors, see our guide to EIS and SEIS: what they do and the benefits of offering them to investors, as well.
If you have any questions at any stage, just select our Speak To a Lawyer feature, and we’ll match you with one of our experts who can consider your objectives and make drafting or other recommendations. We do recommend that you take wider legal advice if you’re planning to issue shares and take on board investors, since putting in place investor term sheets is only one element of fundraising activity.
Broader legal, tax and potentially also employment advice will be relevant. Your investors will expect you to have all of these bases well covered, so they can be confident in the risks they’re taking, and in your prospects of delivering them a great return.