Convertible Preferred Term Sheet

This Term Sheet outlines the principal terms and conditions proposed for the investment in [Your Company Name] by [Investor Name]. This document serves as a basis for the definitive agreement. It is intended to serve not as a legal binding agreement but as a framework to facilitate further discussions and negotiations.

It’s crucial both for the investor and the company to understand and negotiate the terms laid out in this term sheet to ensure both parties' interests are aligned.

I. Offer Details

Amount of Financing: [Amount]

Type of Security Offered: Convertible Preferred Stock

Price per Share: [Price]

Pre-Money Valuation: [Valuation]

Interest Rate: [Interest Rate]% per annum

A stated amount to be invested by [Investor Name] for a specific number of shares in [Your Company Name]. The purchase price per share is based on the pre-money valuation which will equate to the percentage of ownership post-investment. The interest will accrue annually and will be compounded in case not paid yearly.

This section provides a foundation for the financial aspects of the investment, enabling both parties to understand the total financial commitment and the resulting ownership and yield structuring.

II. Conversion Terms

Conversion Trigger: Automatic conversion upon a Qualified Financing of [Specify Amount] or more.

Conversion Price: Initially set at the same price as per this term sheet but includes provisions for future adjustments.

Conversion Cap: [Cap Amount]

The shares will automatically convert into common shares at the next qualifying financing round, under certain conditions which include but are not limited to the total amount raised exceeding a specified threshold. This mechanism is designed to protect the investor by setting a cap on the valuation at which their investment converts, maximizing their potential equity.

The terms also incorporate adjustments to the conversion price to accommodate for various future scenarios, such as additional financing rounds, strategic investments, or significant corporate actions that might dilute the value of the existing shares.

III. Investor Rights

Board Seats: [Number] seat(s) on the Board of Directors.

Information Rights: Regular updates and financial reports no less than quarterly.

Voting Rights: Standard as per the equivalent common shares post-conversion.

Anti-Dilution Protection: Included, with a weighted average mechanism.

The term sheet ensures that [Investor Name] receives rights that are protective of their investment, including having a say in pivotal company decisions through board representation and voting rights equivalent to that of common stockholders upon conversion.

Anti-dilution protections are also incorporated to preserve the value of their investment against dilution through subsequent equity issuances at lower valuations.

Furthermore, information rights are granted, requiring [Your Company Name] to keep [Investor Name] adequately informed on the financial and operational progress through periodic and comprehensive reports.

This transparency is crucial in maintaining investor confidence and ensuring continued support in the company's growth and development.

IV. Conditions to Closing

Completion of satisfactory due diligence by [Investor Name]. Signing of definitive agreements which are consistent with this term sheet and contain customary representations, warranties, and covenants. Receipt of necessary corporate and regulatory approvals, and any other conditions that are deemed necessary by [Investor Name] before closing the financing.

V. Signatory

This term sheet is executed as of [Date] by:

[Your Company Name]

[Your Name]

[Investor Name]

VI. Governing Law and Jurisdiction

This term sheet and any disputes arising from or relating to it shall be governed by and construed in accordance with the laws of [Jurisdiction]. Any legal action or proceeding arising out of or relating to this term sheet shall be brought exclusively in the courts of [Jurisdiction].