Down Round Term Sheet

---

I. Introduction

This Down Round Term Sheet ("Term Sheet") outlines the terms and conditions for [Your Company Name]'s proposed financing round. It is intended to serve as a guide for negotiations between [Your Company Name] and potential investors. The terms outlined herein are subject to change and are not legally binding until formal agreements are executed by all parties involved.

II. Investment Terms

A. Investment Amount

• The investor, [Investor Name], agrees to invest $5,000,000 in [Your Company Name].

• The investment will be made in exchange for a 20% equity stake in [Your Company Name].

B. Valuation

• The pre-money valuation of [Your Company Name] is set at $20,000,000.

• The post-money valuation, inclusive of the investment, is $25,000,000.

C. Down Round Protection

• In the event of a subsequent financing round at a lower valuation ("Down Round"), [Investor Name] will be entitled to certain protections to mitigate the dilution of their equity stake.

• Upon the occurrence of a Down Round, [Investor Name] will have the option to:

  1. Receive additional equity to maintain their ownership percentage.

  2. Convert their preferred shares into common shares at a lower valuation.

  3. Other negotiated terms to protect their investment.

III. Governance and Control

A. Board Representation

• [Investor Name] shall have the right to appoint one (1) director(s) to the board of [Your Company Name].

• The composition of the board shall be five (5) directors appointed by [Your Company Name] and one (1) directors appointed by [Investor Name].

B. Voting Rights

• Major decisions, including those related to financing, acquisitions, and changes to the company's charter documents, shall require 75% approval of both [Your Company Name] and [Investor Name].

IV. Exit Provisions

A. Liquidation Preferences

• In the event of a liquidation event, [Investor Name] shall have the right to receive 2x times their original investment amount before any distribution is made to other shareholders.

• If the liquidation proceeds are insufficient to cover the liquidation preferences, the remaining proceeds shall be distributed pro-rata among all shareholders.

B. Right of First Refusal

• [Investor Name] shall have the right of first refusal to purchase any shares offered for sale by existing shareholders, subject to certain conditions and limitations.

V. Miscellaneous

A. Confidentiality

• All information shared between [Your Company Name] and [Investor Name] shall be kept confidential and may only be disclosed with the consent of both parties.

• This confidentiality obligation shall survive the termination of any negotiations or agreements between the parties.

B. Governing Law

• This Term Sheet and any subsequent agreements entered into by [Your Company Name] and [Investor Name] shall be governed by the laws of the State of [State] without regard to conflicts of laws principles.

---

Term Sheet Templates @ Template.net