SOLUTION: SLU Wk 6 Venture Capital and Private Equity Term Sheet Negotiations Worksheet

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Term Sheet Negotiations Paper




Definition and purpose of a terms sheet.
According to Cremades (2018), the fear of making a mistake in the future is a problem
that faces business founders and managers. In order to take care of it, the business should lay
down a strong foundation that will enable the company to recollect itself and rebuild itself once a
calamity or a problem comes on its way. Several agreements and MOU’s must be set and signed
against to prevent conflict between clients and the business or the organization. These documents
help in the creation of an appealing working environment and a good relationship between a
client and the business or organization. The term sheet is an important document that outlines the
terms of investment and collateral during the process of signing a business agreement. This
document directs the legal counsel as the final agreement is being prepared. Ganti (2020) states
that the document is non-binding in nature, and it entails all the conditions of the agreement.
Most of the term sheet formalities are skipped, and only the binding terms are put down in a
bulleting format. When dealing with venture investors, the term sheet is presented during a
partner’s meeting or during a meeting when the founder is present. This means that if the term
sheet meets all the conditions set is then presented to the founder. The funding type you are in
with the funding party determines the term sheet you will be having. Less stake means fewer
legal requirements and burning time; hence this dictates that the term sheet will be a less
complex one.
Various items must be included in a term sheet document, including the amount being
offered, shares and prices, voting rights, type of collateral being offered, anti-dilution provisions,
and non-closure requirements signatures founders obligation, and liquidation preferences. A term
sheet document can be long so as to accommodate a lot of information. Many founders prefer
simplicity, clarity in the document, which covers all the bases required. A long document may



sometimes lead to a delay in the agreement’s processing or increase the cost, hence causing the
investor to negotiate the deal twice. An investor should acknowledge the risks that a vague
agreement could land him or her into; hence the investor should ensure the following conditions
are met by the term sheet developed; asking for a controllable amount of funds, financing
conditions that could not bankrupt you in the near future, terms that allow further fundraising and
realistic and time-bound expectations that do not describe a desired hot exit. Since all business
partners yearn to associate with optimistic and open-minded investors, huge financial assistance
will mean giving out a greedy picture hence lowering the chances of engaging with you. Napley
(2017) states that a term sheet without signatures is not a complete deal; hence any team can
decide to part ways with the other. Any investor should be ready for anything since it is not
guaranteed that the deal is complete on the issuance of a term sheet document; hence
professionalism and ethical behavior should be observed in case an agreement is not met.
What is being sold?
According to the National Venture Capital Association, the term sheet should include all
terms and conditions that apply for a series of stock. My hospitality company that is ‘Cool
Waters Hotels’ will be offering hospitality services to all customers around the location. As the
founder of this business, I shall ensure all requirements, legal procedures, and ethical issues are
met during the hospitality services provision.
Stock amount.
The company has two investors who have already come up with a $1260 capital, and half
of this amount was used in the purchase of stock. Being the company’s founder, I bear all
responsibilities of making final decisions; hence, the company makes every stock purchase after
my approval. Consultations are key in a proper decision-making process hence involving each



other when making any business decision will always make us achieve the best. The company’s
main purchases are made after every three weeks to ensure a reliable supply and proper
Voting rights.
As illustrated by Hayes (2020), a shareholder in a company bears voting rights, which
means he/she is liable for voting on matters affecting the company and deciding who to take the
board of director’s positions. The preferred stock shall bear common voting rights with the
common stock when they meet a 5% limit. They will also bear the right to choose the members
to take the board of directors. Upon approval through voting, the certificate of incorporation shall
be changed to increase or decrease the common stock’s size, and this shall be done by the
majority of the preferred and common stock.
Chen (2020) shareholders can determine the dividends to be given through their voting
rights, but the board of directors can determine the frequency of paying the dividends and also
the payout rates. Through the board of directors’ help, I will ensure that the shareholders are
given dividends through legal procedures. The series a preferred will be paid 30% dividends
payable upon redemption.
Founder rights.
To avoid the likelihood of crippling surprises, the company’s founders need to enter into
an agreement among themselves. The company should establish an open and honest discussion
that accommodates every individual’s fears, aspirations, and attitudes. The founders’ rights shall
include the transfer of ownership, business confidentiality, decision making, choice of law, and
representation and warranties.

Exit provisions.
In the event of liquidation, the proceedings and payments shall be made as follows; the
original purchase price shall be paid first plus the accrued dividends on each share, a preferred
will receive on an as-converted basis while the balance shall be paid to the common stock
Key issues that must be addressed when preparing to successfully negotiate.
According to Demers (2015), many aspects of life involves negotiations; hence quality
negotiation skills promise a quality life. Mastering effective negotiation skills is crucial for your
success, and hence there are key issues that need to be observed when preparing for a
negotiation. Being in the business sector, you do not choose to negotiate or not as it is the
everyday event. Understanding the partner’s background information, you will enter into a
negotiation with helps you prepare well since you have a reference point that will help you
sharpen your points to give during the negotiation. Entering into a negation blindly limits the
chances of having a successful negotiation. Proper research and analysis of the business or
organization you are going to negotiate with raises the chances of having a better negotiation
experience. As an entrepreneur, business analysis and comparison helps in establishing proper
negotiating mechanisms and key points to the state during a business meeting.
Having a goal for engaging in a negotiation will make you prepare well for the meeting.
Subjecting the negotiation towards your ultimate goal will help keep you focused on the
negotiation’s purpose. A successful entrepreneur always keeps his actions on the right path to
achieve his or her ultimate goal. As an investor, you should set your mind fixed on the exact
amount and the equity you are ready to offer when entering in negotiation with any venture
capitalist organization.




A plan is a dream on a paper, and it is easy to implement something you have a plan for,
then you do not have a plan for it. A plan will help you create hypothetical scenarios and
contingency plans to keep you prepared for the negotiation. Moreover, confidence increases your
negotiating power; hence when you enter the negotiation room with much confidence, then you
increase your chances of convincing your negotiation partner. Standing firm with your points
will make your claims and requests to be taken more seriously; hence you might end getting a
better contract.
Determination and self-interest are also key during a negation process. Being determined
helps to keep you on the negation’s main goal and hence reduces the chances of being diverted
by the sweet promises of the negotiator. Although self-interest may make you look greedy, it will
make you look more confident and intimidating; hence you may end up winning a favorable deal
as opposed to a win-win situation that occurs in most negotiation scenarios. The more you apply
this mentality, the more you give bolder requests that the negotiation partner might find difficult
to deny.
Objectivity keeps you focused on what you are going to engage in and why you are
entering the negotiation room. Having the statistics of how you will use the funds you are
requesting shows some kind of responsibility; hence when entering into the negotiation room
with the venture capitalist organization, a tabled expenditure of the funds you are requesting will
increase the chances of being accorded the request. Bearing in mind that the more actively you
negotiate, the more you are likely to win the negotiation, having supportive documents will
increase the chances of convincing your negotiation partner.
Summarize the basic interests of the venture capitalist organization and be sure to include
a discussion of objections that may occur.



Invention and innovation are key drivers of the economy. What’s more, they have a
powerful grip driven by entrepreneurs roaming for new industrial frontiers. However, between
the idea and the exploration stands the venture capitalist. The venture capitalist is there to help
the entrepreneur pass through tight spots in exchange of a piece of the action, an exchange or a
course of some kind. This is the interest of a venture capitalist. As we see with venture capitalists
such as Tom Perkins and Tommy Davis, the individuals played a key role in developing the
computer industry. Their knowledge was as valuable as its capital. Increasingly, venture
capitalists’ nature has expanded to include entrepreneurs, bankers, and more entrepreneurs like
MBA’s. The current reality of venture capitalists entails understanding how crucial venture
capitalists are to the economy. There are numerous basic interests of the venture capitalist
organizations. Some objections occur as the venture capitalists try to meet their interests. Such
are described below.
To fill a void
Even though many economists have contra perception, most venture capitalists,
according to Masulis and Nahata (2011) want to fill a void in basic innovation. For instance, in
1997, venture capitalists invested more than $10 billion, but only 6% of this amount went to
finance startups. About 1% of this amount invested went to finance research and development,
while most of the finances were used to make follow-ups to funded projects and make sure they
were successful. They followed the projects through great government expenditures, and
corporations estimated about $230 million. These finances play a great role in the next stage of
the innovation cycle before commercializing its operations. These states that most of the funds
invested by venture capitalists go to finance infrastructures and investments to grow the business,
balance sheet items such as working capital, and expense investments like sales and marketing.



The idea of venture capitalists is to invest in a company until it reaches its credible potential
because it is not long term money. This can make it easy for a company toe sold to a corporation
so that institutional public equity can provide liquidity. Therefore, venture capitalists are there to
fill voids of funds for innovation. These voids can include the entrepreneur’s family and friends,
government sources, traditional sources, and personal assets. However, venture capitalists may
find it hard financing innovations inherently in risky ventures.
Sufficient returns at acceptable risks
This is another basic interest of ventu…

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