This term sheet summarizes the principal terms with respect to a potential private placement of convertible preferred equity securities. It is not a legally binding document, but rather a basis for further discussions.
District of Columbia Convertible Preferred Equity Securities Term Sheet
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Term sheets for venture capital financings include detailed provisions describing the terms of the preferred stock being issued to investors. Some terms are more important than others. The following brief description of certain material terms divides them into two categories: economic terms and control rights.
What Are Convertible Preferred Shares? These shares are corporate fixed-income securities that the investor can choose to turn into a certain number of shares of the company's common stock after a predetermined time span or on a specific date.
Preferred stock is a type of stock that has characteristics of both stocks and bonds. Like bonds, preferred shares make cash payouts, often at a higher yield than bonds, while offering higher dividend returns and less risk than common stock.
A mandatory convertible is a security that automatically converts to common equity on or before a predetermined date. This hybrid security guarantees a certain return up to the conversion date, after which there is no guaranteed return but the possibility of a much higher return.
The main difference is that the convertible preferred stocks do have a maturity period and consist of perpetual security, whereas the convertible bonds do not include any perpetual security as they don't have the maturity period in case the bonds are not converted.
Preference shares, more commonly referred to as preferred stock, are shares of a company's stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders.
But no matter who the investor is, a term sheet will always contain six key components, including: A valuation. An estimate of what a company is worth as an investment opportunity. ... Securities being issued. ... Board rights. ... Investor protections. ... Dealing with shares. ... Miscellaneous provisions.
What Is a Term Sheet? A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents.