Terms to Expect from

an Investors Term Sheet

There should be no surprises!

Agenda• Meet & Greet• Elevator Pitches• Due-Diligence• Valuations• Common Terms• Q & A• Wishing you all the best on Demo Day

Due-Diligence

• Company• Business Proposition• Product of Service Offering• Market Opportunity• Governance and Key Management• Operations• Company Financials• Economic Assessment• Staffing• Ownership and Exit Strategy

Business Valuations

• Every valuation and Pricing is unique• 65% of business owners don’t know what

their company is worth• 85% have no exit strategy• 75% of their worth is tied up in their business• If you have revenue get a proper valuation

from a CBV

Valuation of Early Stage Companies

1. Venture Capital Method (ARI)2. Scorecard Method (David Berkus)3. Risk Factor Method (ARI)4. The Shamrock Method (Buckley)

Scorecard Method

30% Management - quality team in place, except sales25% Opportunity - appears to be a huge opportunity15% Product – disruptive technology, prototype done10% Sales – team not in place , channels unclear10% Competition – many small players, lack technology10% Other Factors – foreign Market, partners

Risk Factor Method

• Management• Stage of the business• Legislation/Political risk• Manufacturing risk• Sales and marketing risk• Funding/capital raising

risk

• Competition risk• Technology risk• Litigation risk• International risk• Reputation risk• Potential lucrative exit

The Shamrock Method

• Credit for Actual Invested Capital• Up to 250K for Management Team• Up to 250K for Proof of Concept or Product Validation• Up to 250K for Business Model, pricing, etc.• Up to 250K for other including advisors, governance,

financials, company infrastructure, etc.• Up to 250k for go to market strategy• Credit for 2 years of revenue run rate up to 3 years

Common Deal Terms• Requirement for a BOD Seat• Anti-Dilution Provision – Pre-Emptive Rights• Share Option Plan 10 – 15% of authorized shares• Drag Along Rights – a majority SHR• Tag Along Rights – a minority SHR• Postponement Agreements• Key officer insurance in addition to D & O• Price protection from a down round• Requirement to buy out investors after 5 years without an exit• Observer Rights• Reporting Requirements

Common Deal Terms• CD Valuation Cap• CD Discount to Qualified Financing 15 or 20%• Change of Control Provisions• Representations and Warrants• Covenants• Default provisions• Prepayment• Conversion at next round financing• Governing Law• Conversion on Sale or Optional Conversion• Legal Fees• Founder Stock Vesting

Liquidity Preference

• Convertible Debenture – many objectives that include liquidity preference

• There is a lot of discussion around how liquidity preference should be given in a company liquidation vs. sale of company

• Warrant coverage is often and better way to ensure CD protection is given – Equity Kicker

Future Topics

1. Bootstrapping a Company & Exec Summary2. Preparing a Pitch for Investors3. Accessing Capital from a Angel Network4. Terms to expect from an Investors Term

Sheet5. Forming an Advisory Board6. Pros of Cons of accessing Venture Capital too

early & some of the pitfalls to avoid

Gerard Buckley, BBA, FICB, ICD.DPresident and CEO Jaguar Capital Inc.(C) 416-884-9522(W) 416-646-6789g.buckley@jaguarcapital.ca

www.jaguarcapital.ca

@jaguarcapital @gerardbuckley