Key Terms in the Terms Sheet

Key Terms in the Terms Sheet

February 12, 2020 by investor

Here are some Financial Parameters to look for in a terms sheet:

Type of Security: Convertible Preferred Stock, Series A Convertible Preferred Stock, or Series Seed Preferred Stock.

Investment Amount: How much is being raised.

Pre-Money Valuation: What the business is worth before the investment. The pre-money valuation can also appear in the “Price Per Share” section.

Price Per Share: The price per share is calculated by dividing the agreed on pre-money valuation by the total number of shares outstanding in the startup. The share price calculation is where the term “fully diluted” shares outstanding comes into play.The term “Fully diluted” means  the options pool and other forms of stock such as warrants must be included in the share total.

Conversion: Refers to the rate preferred shares can be converted to common.

Dividends: They are either Cumulative Dividends or Non-Cumulative Dividends.  Which determines if dividends are paid out along the way or at conversion.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.