casemark/equity-term-sheet

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