Understand what a term sheet is for, how to read it & more importantly how to decipher the underlying message of what the VC actually thinks of your company's future.

1. Raising Venture CapitalWorkshop Understanding Term Sheets

2. What are They? What are term sheets used for? 8 October, 2009 2 www.ltaylorsolutions.com

3. Term Sheet Purposes Shows the Investor’s view of the business Clearly defines the investor’s expectations The ultimate potential value of the business Identifies the areas of possible negotiation 8 October, 2009 www.ltaylorsolutions.com 3

4. Vocabulary Let’s look at the essential vocabulary on a term sheet 8 October, 2009 www.ltaylorsolutions.com 4

5. Essential Vocabulary Instrument Type of Shares (Convertible, Preference etc) Terms & Conditions placed on shares Vesting Provisions How total investment will be paid Defines management stock options if any Decision Rights Power of veto 8 October, 2009 www.ltaylorsolutions.com 5

6. Other Essential Vocabulary Conversion Terms In what way are the preferred shares to be converted Option Pool Total amount of common shares to be put in place for stock option remuneration Anti-Dilution An ability to have investment ‘re-priced’ if the company misses targets and subsequently has a lower valuation 8 October, 2009 www.ltaylorsolutions.com 6

7. Examples Let’s look at some typical examples 8 October, 2009 www.ltaylorsolutions.com 7

9. Company will make it to an IPO

10. Well-known management will come to work there for stock options

11. VC fund does not request anti-dilution as the warrant or option for an extra 25% reduces this risk.8 October, 2009 www.ltaylorsolutions.com 8

13. VC will feel assured by an ability to negotiate a preferential deal via Anti-dilution clause should the company miss their targets

14. Power of Veto will help VC to manage the future of the business from the inside

15. The primary concern for this VC is an ability to follow his investment in future rounds 8 October, 2009 www.ltaylorsolutions.com 9

16. Exercises Let’s look at the deal 8 October, 2009 www.ltaylorsolutions.com 10

17. The task Look at the following table of ‘three offers’ Decide what each VC… Believes about the company’s future What they believe the risks are What are they trying to achieve from the deal What would they be willing to negotiate on Decide which is the best offer for the company’s future & explain why 8 October, 2009 www.ltaylorsolutions.com 11

18. Three offers 8 October, 2009 www.ltaylorsolutions.com 12

19. 8 October, 2009 www.ltaylorsolutions.com 13 Please see www.ltaylorsolutions.com for further information