As a mentor in ReaktorX, I show founders the legal aspects related to the process of acquiring an investor, as well as running a business in Poland. I have already heard from the participants that thanks to this workshop they learned they can stand up to an investor, what issues they can try to negotiate in a contract, and about the clauses investors always get in contracts.
The accelerator participants are always interested in discussing term-sheets and the points which need to be included in them. This is why we always go through all the points of a model term sheet with the start-ups taking part in the ReaktorX workshops.
A term sheet is the first document signed by a start-up and an investor (except for a confidentiality agreement). Although it is non-binding for the parties, it later translates into the construction of an investment agreement. Therefore, during the negotiations it is worth to focus not only on business issues (that is, who pays the money and how much or on what shuffling), but also on legal ones.
Every document of this type should include some basic elements. First of all, it needs to determine who signs the term sheet. Another thing is financial matters. How many shares will the investor take and at what rate? Will the money be transferred in one or more instalments? Then there are issues related to the management of the company; among others: whether there will be a supervisory board, or whether someone will have personal rights to appoint a member of the board. Then there are the issues relating to share:, that is who and on what terms will be able to sell their shares. In addition, there may be other provisions in the document, for instance regarding exclusivity, that is that during the negotiations period the founders do not look for another investor on the market.
Negotiations of a term sheet are like negotiations of any other deal. Most of the time is spent on business arrangements. After that it is advisable to pass the case to lawyers. A customer might not be aware of the difference between particular words in the agreement, like X and X, which mean completely different things when it comes to legal terms.
Tomasz Snażyk, law firm Snażyk Korol Mordaka
Managing partner in a law firm Snażyk Korol Mordaka. He is an expert in the field of investment agreements, M&A, project finance, company law, implementation of R&D and energy projects. Start-up, investors and VC advisor.
Do you want to participate in Tomasz Snażyk’s workshops? Apply to ReaktorX, a pre-acceleration programme for first time founders. Deadline is 10th October. For more information see the programme’s website
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