The terms sheet sets out terms such as Pari passu, Last Money in Rules, Exclusivity and confidentiality, and Conditions of Financing
Pari passu is a Latin phrase meaning equal footing and without preference. This clause basically states that if the startup issues any new classes of stock then it shall have equal rights with prior classes. This applies to liquidation preferences, voting rights, and so on.
The term prohibits the founders from creating a new class of stock that puts existing investors second in line.
Last Money In Rules term says whoever puts in the most recent funding calls all the shots.
The exclusivity term seeks to prevent the founders from engaging other investors for some period of time. A 30-day duration is typical.
Tied closely to the idea of exclusivity is the confidentiality clause. The investors do not want the founders to reveal any deal terms or other information to competing investors.
Conditions of Financing terms require founders to formalize items such as employment and non-compete agreements with the startup and legal assignment of all inventions and other intellectual property to the startup entity.
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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.