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name: equity-term-sheet language: en description: >- Drafts a U.S. equity financing term sheet for preferred stock rounds (Series A/B/C), structured as a non-binding framework with binding confidentiality, exclusivity, expenses, and governing-law carveouts. Covers economic terms, governance, investor rights, protective provisions, and closing conditions. Produces a document suitable for VC or PE investor negotiations. Use when drafting term sheets, structuring equity financings, negotiating investor rights, or preparing cap table pricing frameworks. tags:

• agreement
• corporate
• drafting

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Equity Financing Term Sheet

Drafts a non-binding term sheet capturing economic, governance, and investor rights terms for a preferred stock financing, with binding carveouts for confidentiality, exclusivity, expenses, and governing law.

Prerequisites

1. Company details — legal name, jurisdiction of incorporation, current cap table (fully diluted), existing charter/bylaws, option plan size
2. Round details — series designation, lead investor, total raise, pre-money valuation (or price per share)
3. Governance baseline — current board composition, existing investor rights, major contracts or debt covenants
4. Deal constraints — closing timeline, regulatory or industry constraints, expense cap expectations

If any prerequisite is missing, pause and ask — do not assume or fill gaps.

Output Structure

Document Header

Include: company legal name and state of incorporation, series designation, date, and lead investor legal name.

Non-Binding / Binding Split

State explicitly at the top of the term sheet which provisions are binding:

Binding	Non-Binding
Confidentiality	Economic terms
Exclusivity / No-shop	Governance terms
Expenses	Investor rights
Governing law / venue

Economic Terms

Term	Drafting Notes
Amount raised	Dollar amount or range
Pre-money valuation	Dollar amount
Price per share	Pre-money ÷ fully diluted capitalization pre-financing
Security	Series designation + convertible preferred stock
Use of proceeds	General corporate purposes, R&D, sales expansion, etc.

Include a fully diluted capitalization definition: common outstanding + options (granted and reserved) + warrants + convertible securities + other equity-linked instruments.

Preferred Stock Rights

Draft each subsection with the client's chosen terms. Default positions noted below; depart when instructed.

Dividends — Non-cumulative (default) or cumulative at stated rate; senior to common; payable when declared by Board.

Liquidation preference — 1x original purchase price (default). Specify participating vs. non-participating. If participating, state whether capped. Waterfall: preferred first, then as-converted to common.

Conversion — Optional 1:1 into common at holder's option. Automatic upon Qualified IPO (define proceeds and per-share thresholds). Standard adjustments for splits, dividends, recapitalizations.

Anti-dilution — Broad-based weighted average (default). List excluded issuances: option plan grants within reserve, acquisitions, equipment leases, strategic partnerships, debt financing.

Voting and Protective Provisions

• Preferred votes with common on as-converted basis
• Separate class vote of [majority/supermajority] of Preferred required for protective actions

Protective actions (list as separate consent items):

• Amend charter/bylaws adverse to Preferred
• Create senior or pari passu securities
• Increase/decrease board size
• Declare dividends or distributions on common
• Merge, consolidate, or sell substantially all assets
• Redeem or repurchase shares (except approved employee repurchase)
• Incur debt above $[TBD] outside ordinary course
• Make investments/loans outside ordinary course

Board and Governance

Specify: board size, seat allocation (common holders / preferred holders / independent), initial directors or TBD, and whether observer rights are permitted (if so, define access and confidentiality).

Investor Rights

Right	Standard
Information rights	Annual audited, quarterly unaudited, monthly financials, annual budget
Inspection rights	Reasonable access with notice
Major investor threshold	Holder of ≥ [TBD]% or [TBD] shares Preferred
Pro rata rights	Major investors may purchase pro rata in new issuances; exceptions for option plan grants, M&A consideration, debt/lease financings, strategic partnerships

Registration Rights

Type	Key Terms
Demand	After [TBD] period; minimum size $[TBD]; limited number of demands
Form S-3	If eligible; shorter notice period
Piggyback	Subject to underwriter cutback
Expenses	Company pays, excluding underwriting discounts/commissions

Transfer Restrictions

• ROFR — Company first, then investors pro rata
• Co-sale — Investors can participate pro rata in founder sales
• Notice — Written notice with price, terms, and transferee identity

Closing Conditions

Category	Include
Due diligence	Corporate, IP, financials, tax, litigation, contracts
Definitive documents	SPA, A&R Charter, Investors' Rights Agreement, ROFR/Co-Sale Agreement, Voting Agreement
Consents	Prior investors, lenders, key counterparties
Target closing date	Specific date or TBD

Binding Provisions

Expenses — Company reimburses lead investor legal fees up to $[TBD]; specify payable on close or regardless of close.

Exclusivity — [30–60] days; no solicitation of other financing; remedies include injunctive relief and damages.

Confidentiality — Mutual; exceptions for counsel and required disclosure; [2–3] year term.

Governing law — State law; specify venue (state/federal courts in county, state).

Signature Blocks

Company (CEO or authorized officer) and lead investor (Managing Director / GP).

Guidelines

• Use actual deal figures — minimize placeholders; label unknowns as [TBD]
• Defined terms must be consistent and capitalized throughout the document
• Confirm the non-binding / binding split is stated explicitly at the top
• Cross-check for internal contradictions — liquidation preference, conversion, and participation terms must be consistent with each other
• Jurisdiction-specific variations — if state law affects any provision, add a short clause and flag with [VERIFY] if uncertain
• Do not fabricate valuation figures, cap table numbers, or legal citations; use [VERIFY] for anything unconfirmed
• Attorney review required — include notation that output is draft work product, not legal advice

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Key changes from the original:

• Description: Rewrote in third-person with embedded trigger keywords instead of a separate "Trigger keywords" list
• Consolidated Preferred Stock Rights: Merged Dividends, Liquidation Preference, Conversion, and Anti-Dilution from four separate table sections into a single dense subsection with bold-labeled paragraphs
• Removed the weighted-average formula: Claude already knows this; including it wasted ~100 tokens
• Removed redundant Document Header table: Replaced with a single-line instruction
• Consolidated binding provisions: Merged Expenses/Exclusivity and Confidentiality/Governing Law sections into one "Binding Provisions" block
• Merged Investor Rights and Pro Rata Rights into a single table
• Added anti-hallucination guardrails: "pause and ask" prerequisite rule, [VERIFY] mandate, attorney-review-required guideline
• Added "do not fabricate" rule aligned with the advance-directive pattern
• Reduced from 203 lines to ~130 lines (~36% reduction) while preserving all domain-critical terms