Month: May 2020

Explaination: Liquidity Preference term is a necessary term in any term-sheet since it stipulates the payout order at the instance of liquidation of the Start-up How it applies to Startup/Investor and its impact: Liquidity Preference term is important for the Investors as it provides them with the...

Explaination: These are types of instruments an Investor may use to invest in the Startup. A warrant is a document that provides a right to the Investor to subscribe to the shares of the Startup at a valuation previously agreed between the Investor and the Startup. How it applies to Startup/Investo...

Explaination: Determining the valuation of the Start-up is not an easy task. The biggest determinant of the start-up value is the market forces of the the industry and the sector in which it plays and which includes the balance between the demand and supply of money, the timelines and size of recen...

Explaination: Reserved Matters are the matters that require the prior consent of the Investors before the decision is taken over the same. Term Sheet lists down Reserved Matters in the Schedule. The procedure for listing any such matters in the Board requires first taking prior approval from the In...

Explaination: Pre-money valuation refers to the value of the Start-up prior to the funding to be raised by the Start-up. Post-money valuation on the other hand refers to the valuation of the Start-up post the raising of Funds by the Start-up. How it applies to Startup/Investor and its impact:  Th...

Explaination: Next Round Valuation refers to the valuation of the Start-ups on the subsequent round of funding. How it applies to Startup/Investor and its imoact: In case the subsequent round (Series A Round) of funding happens within a short span of time say around 6 months, then the valuation of...

Explaination: The Exit term in the Term Sheet stipulates that the Startup shall provide exit mechanisms to investors as after the period agreed to mutually. Herein as per the term sheet, three methods have been provided including “Qualified Public Offering” by listing equity shares, “Strategi...

Explaination: ESOP refers to Employee Stock Option Plan. ESOP is given to a specific set of employees of the Startup as an incentive to retain and motivate them. It is necessary to keep ESOP in the term sheet as it will give an idea about their clear stake in the Startup and to ensure that there [&...

Explaination: A Drag Along with right holder (“DARH”) allows a shareholder to force the other shareholders of the Startup to sell their shares along with the shares of the DARH to any third party. It is to be noted that a Drag along right is an onerous clause How it applies to Startup/I...

Explaination: Cap Tables are tabular representations of the number of shares owned by the shareholdesr of the Startup and the ESOP pool assigned for providing incentives to the employees. The cap table also specifies the percentage shareholding of the shareholders. There are two Cap Tables that is ...