Coming to Terms

02/01/2010

Before taking other people's money to finance your venture, it pays to fully educate yourself about the strings attached.

You've found an investor who's willing to make a substantial investment in your biotech company—that's great news. But after the handshake, the next thing is to negotiate the term sheet outlining the structure of the transaction to ensure a true meeting of the minds.

Term sheets should always be used in complex investment transactions—especially those involving venture capital investors or other institutional investors. The term sheet sets forth the key terms of the proposed transaction. A good rule of thumb is that the term sheet should address any provision that could kill the deal.

If you skip on drawing up a term sheet, then during the drafting and negotiation of the investment documents there may be no clear record of the parties' understandings on key issues. In the long run, this will cause confusion and discord, and any subsequent documents will probably take more time and cost more to draft and negotiate because the participating parties may be unwittingly using the definitive documents to negotiate—or renegotiate—key terms. Worse still, well into the process, it may become apparent that you are unable to reach agreement on one or more deal-killer terms and the transaction may collapse.

In the following article, we guide you through the key steps in drawing up a term sheet. Getting this right is important to ensure you remain in control of your company and receive your share of returns.

This article excerpted from nature.com. For full text, please click here.

Email Disclaimer