Resolving Retrospective Equity Claims and Unassigned Intellectual Property Prior to Venture Investment
Unassigned code and informal equity promises require legal assignment and cap table restructuring before venture capital investment closes.
institutional term sheet
Meaning
Non-binding documents outlining the material conditions under which an institutional investor proposes to acquire equity in a startup establish the framework for future legal contracts. The institutional term sheet coordinates the initial phase of venture funding. It ceases to apply once the definitive transaction documents are signed.
Investment Term
Financial parameters define the amount of capital provided and the valuation of the venture. Investors use an institutional term sheet to specify the pre-money valuation and the option pool expansion size. These numbers directly affect the dilution experienced by the founding team.
Governance Condition
Board control and voting rights are established within these documents to protect the capital of the fund. Investors typically demand seats on the board of directors and protective provisions that require their approval for major corporate actions. These veto rights cover borrowing money or selling the company.
Such measures ensure that the founders cannot unilaterally alter the strategic direction of the enterprise without investor consent. This transfer of control represents a permanent shift in the operations of the startup.
Negotiation Right
Exclusivity provisions prevent the founders from seeking alternative funding sources during the due diligence period. This period usually lasts between thirty and forty-five days to allow for legal and financial audits. If the founders violate this clause, they risk legal liability and reputational damage within the venture community.