Get Your Business Funded: Creative Methods for Getting the Money You Need

The Term Sheet

Once you find an angel who is willing to invest in your business, he or she will want you to sign something called a “term sheet.” This is a deal memorandum that explains the terms of the agreement. Remember the old adage: everything is negotiable. The terms of your deal are not set in stone, and if an angel wants to invest in your business, she wants you as much (or almost as much) as you want her. Don't fold.

For a simple angel investment (as opposed to a venture capital infusion) the term sheet should be fairly simple and it would be smart for you to have your own ready. Some of the things you will want to cover are:

• The amount of money you will receive.
• The percentage of ownership you are giving up.
• The number of shares of stock to which that corresponds.
• The number of seats on the board the angel will get.
• Other roles the investor may or may not have in the company.
• Other legal issues suggested by your attorney (inability to dilute shares, for instance).

The last thing to understand is how the angel will take his or her shares in your company. Let's say that when you started your business, you issued 1,000 shares of common stock (all of which you own). The angel may simply ask for, say, 200 shares, and thereby will become a 20 percent minority shareholder in your business. Hold tight to your remaining 80 percent, as you may need it to sell shares to your uncle, or, if you are lucky, to another angel or venture capitalist.

Angel deals typically do not close ...