A Term Sheet in Plain English!


I’m still working my way through some of the excellent material shared by Prof. Erik P.M. Vermeulen at last week’s InterTradeIreland supported All Island Innovation Programme Series of Master Classes at UCC.

Over the course of three workshops and a public lecture Prof. Vermeulen spoke about the factors that characterise a high performing VC (visibility, hyperactivity and disruptiveness), noted an increasing use of convertible notes in early stage funding, warned about possible over valuing of tech start-ups by SV based VCs, told the story of the FACEBOOK IPO and explained how Eindhoven developed a start-up culture. A lot to take in over four 2 hour sessions!


Prof Vermeulen also spoke about VCs taking steps to become more open, more transparent. He noted the Plain English Term Sheet that is currently in use by Passion Capital (www.passioncapital.com) and encouraged others to follow. A short extract helps understand exactly what they mean by Plain English (It does exactly what it says on the tin!)

Passion Capital Term Sheet for [Non-Hipster Limited]
We, Passion Capital LP, want to invest money in your company, [Non-Hipster].

Structure of Financing
We’re making you an offer of a £ [ ] investment as your seed round. This investment will be for [ ] % of the ownership in your company. Your company will issue to us the same type of common shares that you already have.

Option Pool
Our offer assumes that you’ve already or will set up an employee stock option poll before our money goes in, so that our ownership is “fully-diluted” after accounting for that option poll. We think you’ll need at least a 10% option poll after the investment round in order to hire some key management team members and senior people. To make this really clear, see the attached table to see how this looks with actual shareholding and ownership percentages after the investment.

Conditions to Close
Before we sign the paperwork and transfer our money, we have to do some basic due diligence on the company and also on you, the founders. This includes anti-money laundering checks and having you complete a Founder’s Questionaire. We also want to see that all of the company’s relevant employees and freelancers have signed employment or similar contracts which make it clear that the company owns all of the intellectual property that’s been created for the business you’re building.
At the same time, if you haven’t already done so, you should also do a bit of due diligence on us. For example, speak to some of our existing founders and get a feel for what they think of us. We’d be glad to make introductions if it helps.

Estimated Closing Date
We’ll use our standard legal agreements which you should review, preferably with a lawyer to help (and again, maybe also speak to a couple of founders who will have seen and agreed to the same docs). We hope that we can wrap this all up and finish the investment round with signed paperwork and money in your account no later than 4 weeks from today, [date].


You can find the full Term Sheet at http://www.passioncapital.com.

Who is Prof Erik P.M. Vermeulen?

Professor Vermeulen is Professor of Business and Financial Law at Tilburg University and Tilburg Law and Economics Center (TILEC) in the Netherlands. He is also Senior Counsel Corporate/Vice President at the Corporate Legal Department of Philips International B.V. in the Netherlands, where he advises on corporate governance issues, including the global corporate structure of the Philips Group of companies.
In addition to the focus on corporate governance, he has extensive experience in mergers and acquisitions, corporate finance projects, and general corporate and securities law matters.
He has worked on international projects related to corporate venturing activities, corporate venture capital and spin-out transactions. He is a founding council member of the International Venture Club, a collaborative platform that brings together risk capital providers that aim to support small and medium-sized enterprises (SMEs) in their efforts to achieve their full growth and potential. You can get the full profile at https://www.tilburguniversity.edu/webwijs/show/e.p.m.vermeulen.htm.

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