What corporations need to know about VC term sheets

For corporations considering venture investing, the term sheet is where strategy meets structure. This guide walks corporate investors through the key terms, protections, and negotiation dynamics they need to understand before writing their first check — or their next one.

If you’ve followed along in our What Corporations Need to Know series, you’ve read why corporations might consider venture investing , the value of building an ecosystem , and the potential returns on investment – both strategic and financial . At TechNexus, we’re big advocates of corporations investing in early stage businesses, so we’re going to get into the nitty gritty - HOW to move forward with an investment and some of the most influential legal terms that any investor should understand before cutting a check. Today, we’ll cover what corporations need to know about venture capital term sheets. Let’s play out a scenario, shall we? Let’s imagine that our post on venture investing sold you on the concept. Perhaps you’ve spent the last few weeks sourcing and talking to relevant startups, trying to find the right one to make your company’s first investment. You finally found it. The perfect company – strategically relevant, experienced team, killer product, large market, and you have the requisite sign-off from your C-Suite to invest. So now what? The first step to actually facilitating a venture investment is a term sheet, a legal document issued by the lead investor meant to outline the key legal specifications of the round. If you are coming into the round as one investor among a syndicate, there is likely already a term sheet on the table, and your job is simply to review it and agree to it. If you’re the sole investor or the first to commit to a round, it may be up to you (and your legal counsel) to propose the terms. Either way, venture investors should have a good understanding of the key legal terms surrounding investment. I like to break legal terms into two broad categories – terms that dictate control of the company and those that dictate the financial return of shareholders. Control terms determine who makes decisions in the daily operations of the business (typically management) and who makes decisions around future fundraising, exit transactions, and

By Kaitlyn Doyle at TechNexus Venture Collaborative