An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. New start-up companies often turn to the private equity market for seed money because the formal equity market is reluctant to fund risky undertakings. In addition to their willingness to invest in a start-up, angel investors may bring other assets to the partnership. They are often a source of encouragement; they may be mentors in how best to guide a new business through the start-up phase and they are often willing to do this while staying out of the day-to-day management of the business.
Term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
A Washington Angel Investment Term Sheet refers to a legal document that outlines the terms and conditions of an investment deal between an angel investor and a startup company in Washington state, USA. It acts as a preliminary agreement that sets the groundwork for further negotiations and eventually leads to the formal investment agreement. The term sheet plays a crucial role in defining the investment structure, terms, and expectations between the investor and the startup. It covers a range of critical elements that include the investment amount, valuation of the company, ownership stake percentage, rights and restrictions of the investor, investor protections, and the expected return on investment. The term sheet also establishes guidelines for future governance, such as the composition of the board of directors and the decision-making process. In Washington state, there may be variations or different types of angel investment term sheets based on the preferences of individual investors or the specific industry standards. Some common types include: 1. Classic Term Sheet: This is a standard term sheet that covers the general investment terms and conditions. It contains provisions related to the investment amount, equity ownership, liquidation preferences, anti-dilution protection, and rights of the investor. 2. Convertible Note Term Sheet: This type of term sheet is specific to convertible notes, which are a popular form of angel investments. It outlines the terms of the loan, conversion conditions, interest rates, maturity date, and various other details related to the conversion of debt into equity. 3. SAFE (Simple Agreement for Future Equity) Term Sheet: SAFE is an alternative to convertible notes and is often used in early-stage investments. The term sheet for SAFE investments includes provisions related to the investment amount, conversion triggers, valuation caps, discount rates, and other terms unique to SAFE agreements. 4. Preferred Equity Term Sheet: This type of term sheet is used when the investor prefers to have preferred equity rather than convertible debt. It defines the rights and preferences of the preferred equity, such as liquidation preferences, voting rights, and participation rights. It is important to note that the content of the term sheet can vary depending on the negotiation between the investor and the startup. Thus, it's crucial for both parties to carefully review and negotiate the terms before finalizing the investment agreement. Seeking legal counsel and guidance during this process is highly recommended ensuring compliance with Washington state laws and regulations.
