How to read an investment term sheet

Pictures speak a thousand words, right? 👇👇🏾

If you're using a screen reader for accessibility purposes you'll find the definitions below the infographic!

Need help drawing up your term sheet? Email our founder Vicky at vicky@ethiqs.legal

Investment 1

Valuation

  • Pre-Money Valuation: An estimate of the company's worth before investment

  • Post-Money Valuation: An estimate of the company's worth after investment.

  • Capitalisation Table: Percent ownership between the founder and investor.
     

Liquidation Preferences

Liquidations preferences refer to when a company is wound up, including it being sold.

A liquidation preference represents an investors' right to get his or her money back before the holders of common stock.

Binding vs. Non-Binding Agreements

A binding agreement means both parties must uphold the terms outlined in the investment term sheet.

Non-binding simply means there's an understanding between parties

Option Pools

An option pool is made up of shares of stock reserved for employees of a private company. Option pools are often used to attract talent to startups.

Participation Rights

Participation rights give investors the right to "participate" in future equity sales of the company that they're investing in.

Need help drawing up your term sheet? Email our founder Vicky at vicky@ethiqs.legal

Contact Us

Feel free to ask for details, don't save any questions!

CAPTCHA This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.

Our Office

Business Hours

  • Monday - Friday - 9am to 5pm

Get in Touch

Ethiqs is committed to providing our clients with accessible, transparent and affordable legal services and this starts all the way from the initial consultation.