Finding and Doing Deals

Doing the deal

Doing the deal

The first documents an angel is likely to see as a deal is explored is a drop sheet and/or business plan; hopefully both. A drop sheet typically has a number of standard headings and the information is provided on one, or at most two, pages. Headings might include: product or service, problem being solved, competitors, market, team, financials. The business plan is a longer document, up to 20-40 pages, and sets out in detail the venture’s plan for growth.

What’s the deal

The terms of a deal will be set out in a term sheet. The term sheet, as it suggests, sets out the terms for a deal. It serves as a letter of intent between the company seeking investment and the investors. It typically has two functions: to summarise all the key financial and legal terms related to the planned transaction and it quantifies, both in metrics and qualified terms, the value of the transaction. So it is setting out how much the company is to be valued at, the amount of money being invested and the structure of the deal. Often the terms are divided into two categories: ‘economic’ and ‘control’ rights. Economic rights refer to such things are shareholder preferences and dilution protection and control rights include things like board composition and major transaction limits.

Documents to close the deal

A range of documents will be required to close the deal. Key among these is the subscription and shareholders agreement. If the company is very early stage, then other documents may also have to be completed including the companies constitution, employment agreements etc. Templates with suggested provisions for these documents can be found here.