ENTREPRENEUR SPECIAL
How to Decode a Term Sheet Right
Making sense of numbers is a tough ask for most entrepreneurs dealing with term
sheets, angel investors or venture capitalists for the first time. A mass of jargon
and figures, term sheets can confound even those who are pros at the game.
But learning to read a term sheet and the fine print within is vital to sealing a
great deal.“Each and every word should be understood 100% by the entrepreneur,“
said Sunil K Goyal, cofounder of YourNest Angel fund.Equally important is to spot
jargon in a term sheet that spells danger for entrepreneurs. “Investors tend to insert
a `Put Option' that requires an entrepreneur to return their entire investment from
their personal savings if the company is unable to provide any exit after five years,“
said Harshad Lahoti, cofounder at ah! Ventures, a deal-making platform.Watch out for
sections like `Private Matters' a fine print inserted at the end of the term sheet.
It controls all top management hiring, change in business strategy, creation of any
subsidiary. For instance, even if a founder plans to take a home loan above a certain
limit, clauses in the Private Matters section will govern his decision.Many investors also
try to lock in promoters who sign a term sheet for periods varying from 45-90 days,
during which time they cannot negotiate terms with other investors.“Founders should
either look to eliminate this clause or reduce it to 15-20 days,“
said Navin Kumar Rungta, founder of legal compliance firm eLagaan.
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Wednesday, June 17, 2015
ENTREPRENEUR SPECIAL ......... How to Decode a Term Sheet Righ
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