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What is a founder-friendly Term Sheet? Publishing ours.

October 24, 2022
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Written by Ivaylo Simov. 

The earliest stage of the company is where we add the most value to the founders. And this includes going through many “firsts” together – first key hires, first pivot, first customers…and the list goes on. Among these, there is a “first” that little is being talked about – signing the first Term Sheet. This is why today we pay special attention to one of the most important milestones for founders at the beginning of their journey, namely their first Term Sheet. 

Transparency is important for us and so is playing fair. Particularly when it comes to early stage entrepreneurs, who may not know all the ropes or enjoy the backing of experienced investors and advisors to guide them. This is why we have decided to make our Term Sheet for the Eleven Alpha program public and explain in detail the various terms and clauses in it. Because let’s be honest – unless you are coming from a legal or investment background, you will have a hard time understanding all the specifics.

To begin with, term sheets are non-binding agreements that set out the various terms of an investment. If you get a term sheet from a VC, you are almost certainly getting an investment. Think of it as an engagement, before the marriage.

Some of the publicly available term sheets (as the ones linked below) are considered founder-friendly, as is ours, which follows pretty closely these best practices. “Founder-friendly” in this case means that although the investors enjoy certain rights, protections and preferences, these preferences are not excessive. We have elaborated on some of the most common “investor-friendly” variations that you may stumble upon in the comments to our Term Sheet.

Standard term sheets come in two main forms: 

  • The short one-pager one – it is generally used by VCs in the United States and it is quite suitable for more experienced entrepreneurs who know the basics.
  • The long form – almost identical with the short one in substance but some of the more important terms are spelled out in bigger detail.

Eleven’s term sheet is based on the long form Seedsummit template above, which is also used by many VCs in Europe.

 

So without further ado, here’s the annotated 👉 Eleven Alpha Term Sheet. 👈

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