The Founders Guide To Term Sheets and Equity Crowdfunding
June 10, 2020
My team can explain to you how we help startups fundraise when you join.
The second question is easy — what should be in my Investor Pitch Deck?
See this recent post I did on The Ultimate Investor Pitch Deck where you can download a free pitch deck template created from feedback from me, our crowdsourced investment platform, and some of the world’s most active early stage angels and VCs.
The third question about Term Sheets is more complicated.
Why? Because investment terms, company valuation, and the longer-term implications of investment terms are not “one size fits all.” In fact, these are some of the biggest areas of confusion for early stage founders.
To help with that, in this post I’ve listed some great free term sheet resources available to startup and small business owners looking for guidance and sample term sheet agreements. To look at some data and info to guide you, take a look at this post from the Angel Capital Association on Pre-Money Valuations of early stage angel / Seed deals.
Take-aways from early stage angel deal valuations from a variety of sources are:
Median pre-money valuation in 2011 and 2012 for software/internet startups was $2.5MM
The median for life science startups was $3.2MM, and clean tech $3MM
Valuations in Silicon Valley, LA, Boston, New York higher than elsewhere in US
Best of luck in your venture and fundraising, and as a quick resource I also recommend looking at the terms and offerings of deals in your industry getting funded online on equity crowdfunding platforms. You’ll be able to see some of the basic deal terms there, and suggest you use the Pitch Deck Template I put together to guide you on how to shape your pitch to investors.
Also, you can see pitches getting funded online doing equity crowdfunding. We also co-invest with 50 leading VCs from our own venture fund — the VC Index Fund.
While some companies are considering raising money with non-accredited investors (via Title III or Title IV of the JOBS Act) — the deals we do with notable angels and VCs is strictly with accredited investors, which turns out to be a simpler and quicker path to funding given the cost and complexity of some of the non-accredited regulations. These resources come from leading investors, VCs, and legal firms from TechStars to Founders Fund to Cooley and the Kauffman Foundation.
Here are some great term sheet and fundraising resources on the web for you.
*Disclaimer: This article should not be considered legal advice, nor am I proposing to shape terms for your company’s round.
Free Term Sheet Resources
A good place to start to understand Term Sheets: Term Sheets Explained in Plain English by Founders Fund
Resources and Term Sheets available for download on the TechStars site, with documents created by Cooley, LLP: TechStars Docs
Free Sample Term Sheets from the Kauffman Foundation: Seed Term Sheet and Series A Term Sheet
Equity Term Sheets
TechStars Series AA Documents
Y Combinator Series AA Documents
Convertible Note Term Sheets
TheFunded.com and Wilson Sonsini Law Firm put together this sample Convertible Note and had it written up and explained on TechCrunch
Y Combinator’s “Simple Agreement for Future Equity” or SAFE
Alternative Financing Mechanisms
Demand Dividend Term Sheet: An alternative to straight equity or pure debt often used for Impact Investments. Developed by John Kohler and Campbell Law Group
Personal Investment Contracts as innovated on and explained by Rafe Furst, angel investor, mentor at the Unreasonable Institute, co-founder of Crowdfunder.com
Creating Your Term Sheet & Equity Crowdfunding
After reading through these resources, be sure and consult and work with an experienced attorney to create the right financial offering that makes sense both for your company, and for investors.
Finally, one of the more subjective areas is Startup Valuation. As an angel investor and CEO of the VC fund + equity crowdfunding platform Crowdfunder.com, the three most common questions I hear startup founders ask are:
Do you know any investors for me?
What should be in my Investor Pitch Deck?
Where can I find a Term Sheet to guide what I offer investors?
The first question is simple — do I know any investors for you?
Yes, there are thousands of them (angels, VCs, individuals) I’ve brought together online at Crowdfunder, some of which I know personally.
I look to make good things and connections happen for Founders on our platform. FYI — though not all deals choose to be public, and many are private only for higher net-worth investors.
Most of what we do today at Crowdfunder is private and exclusively with higher net-worth angels, VCs, and individual accredited investors under Title II of the JOBS Act (restricted to accredited investors). Follow me on Crowdfunder and I’ll check out your company.
If I take an interest, I may look at investing personally or make introductions to investors I know who may want to know what you’re doing.