TYPICAL DEAL TERMS
If the Boise Angel Fund is interested in making an investment in a company, it will issue a document titled “Memorandum of Terms,’ sometimes referred to as a “Term Sheet.” The term sheet sets forth the terms of the proposed investment. Once signed by the company, it will be submitted to the members of the Boise Angel Fund for their approval. Once the membership has approved the terms, the Term Sheet will be signed by the President of the Boise Angel Fund and then used to draft closing documents.
The fund typically presents the following terms:
Corporate Form: We invest in Chapter C Corporations. If the company is operating in another form, we will ask that it form a Chapter C Corporation and transfer all assets into that corporation prior to closing.
Convertible Participating Preferred Stock: We typically will invest in preferred stock with the following terms:
Amount of Offering: The fund and the entrepreneur will agree upon a total offering amount for this round of financing. The terms negotiated by the Boise Angel Fund will apply to all investors in this round of financing.
BAF Investment: The fund will set an amount which it will invest at the time of the first closing. This amount will typically be less than both the total offering and the minimum offering amount.
Minimum Offering Amount: Our investment alone will seldom be sufficient to allow the company to purse its strategy successfully. We will require that there be a minimum amount of money raised, including our investment before we disburse money. While the BAF intends to assist in raising the additional money necessary to reach the minimum offering amount, the entrepreneur must understand that it is his/her responsibility to raise this money.
Use of Proceeds: We will agree upon how the proceeds are to be used and will require that we give permission to use the funds differently once the investment has been made.
Anti-dilution. We will ask for protection that the company will not sell stock at a price less than the fund has paid for a period of time. If it does, we will have a right to maintain our percentage interest without additional payment.
Put rights: If there is not a liquidity event within a certain period, typically five years, we will reserve the right to sell our interest back to the company at the greater of fair market value, or our original cost plus accumulated dividends.
Board of Directors: We will ask for a seat on the board of directors. Approval of that director will be required by the company for certain events which may affect our preferences.
Investor Rights: We will have rights to:
Intellectual property: All intellectual property rights must be assigned to the company.
Fees: There will be legal fees and other expenses. Those expenses will be born by the company.
Exclusive negotiations: We will ask that once a term sheet has been agreed to, the company and its officers and employees will not enter into negotiations with other parties for a reasonable period of time.
Updated January 2, 2010
If the Boise Angel Fund is interested in making an investment in a company, it will issue a document titled “Memorandum of Terms,’ sometimes referred to as a “Term Sheet.” The term sheet sets forth the terms of the proposed investment. Once signed by the company, it will be submitted to the members of the Boise Angel Fund for their approval. Once the membership has approved the terms, the Term Sheet will be signed by the President of the Boise Angel Fund and then used to draft closing documents.
The fund typically presents the following terms:
Corporate Form: We invest in Chapter C Corporations. If the company is operating in another form, we will ask that it form a Chapter C Corporation and transfer all assets into that corporation prior to closing.
Convertible Participating Preferred Stock: We typically will invest in preferred stock with the following terms:
- Preferred stock means that this class of stock is paid before common shareholders.
- It will be convertible into common stock
- When there is a liquidity event (e.g. a sale of the company), the holders of the preferred stock will first receive their investment back; then they will participate pro rata in the proceeds of the sale as if they held common stock.
Amount of Offering: The fund and the entrepreneur will agree upon a total offering amount for this round of financing. The terms negotiated by the Boise Angel Fund will apply to all investors in this round of financing.
BAF Investment: The fund will set an amount which it will invest at the time of the first closing. This amount will typically be less than both the total offering and the minimum offering amount.
Minimum Offering Amount: Our investment alone will seldom be sufficient to allow the company to purse its strategy successfully. We will require that there be a minimum amount of money raised, including our investment before we disburse money. While the BAF intends to assist in raising the additional money necessary to reach the minimum offering amount, the entrepreneur must understand that it is his/her responsibility to raise this money.
Use of Proceeds: We will agree upon how the proceeds are to be used and will require that we give permission to use the funds differently once the investment has been made.
Anti-dilution. We will ask for protection that the company will not sell stock at a price less than the fund has paid for a period of time. If it does, we will have a right to maintain our percentage interest without additional payment.
Put rights: If there is not a liquidity event within a certain period, typically five years, we will reserve the right to sell our interest back to the company at the greater of fair market value, or our original cost plus accumulated dividends.
Board of Directors: We will ask for a seat on the board of directors. Approval of that director will be required by the company for certain events which may affect our preferences.
Investor Rights: We will have rights to:
- Maintain our proportionate interest through purchasing a pro rata share of any new offering
- Purchase any interests offered by founders and management to others at the same terms.
- Participate in any sales of interests by founders and management under the same terms.
Intellectual property: All intellectual property rights must be assigned to the company.
Fees: There will be legal fees and other expenses. Those expenses will be born by the company.
Exclusive negotiations: We will ask that once a term sheet has been agreed to, the company and its officers and employees will not enter into negotiations with other parties for a reasonable period of time.
Updated January 2, 2010
