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Frequently Asked Questions

What terms should be in a Preferred Stock term sheet?

Each of the following terms normally appears in a term sheet for a preferred stock financing:

  • Amount Raised and Pre-Money Valuation;
  • Liquidation Preference;
  • Voting Rights;
  • Protective Provisions;
  • Anti-dilution Provisions;
  • Mandatory Conversion;
  • Registration Rights;
  • Information Rights;
  • Pro Rata Rights;
  • Board Composition and Drag-Along; and
  • No Shop/Confidentiality.

Term sheets may include more provisions than what are included in the above list; the more that is negotiated and laid out clearly in the term sheet, the fewer issues there are to negotiate when drafting the financing documents.

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