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SeedSummit standardises Term Sheets

Posted by Michael under Business Growth, Entrepreneur Resources

For any entrepreneur, it’s important to review term sheets thoroughly. But for first-time entrepreneurs and those who are already deep into their new venture, the time it takes to master the contents of a term sheet can put a brake in business development.

Term sheets are non-binding templates used to shape more detailed legal documents that will determine the terms of an investment. Usually term sheets are required for seed investment used to undertake research, develop a prototype or conduct market tests on a new product.

So SeedSummit, a Seedcamp forum, has brought together 21 European investors to create ‘reader-friendly’ umbrella documents that are intended to reduce the lead time on completing investment deals, cut legal costs and provide transparency.

The underlying ideas are to create efficiency in funding, allow like-for-like comparisons and underpin an integrity level that could lead to later standard setting across national boundaries in Europe. The documents are the SeedSummit Term Sheet and the Enterprise Investment Scheme (EIS) variant which is specifically designed for the UK marketplace and both are being viewed by Seedcamp as the prototypes for a further development of more complex legal instruments, building on the original American term sheets agreed in 2009.

SeedSummit says, ‘We hope these documents help bring coherence to the …European market. By bringing the players to reach a common agreement for the benefit of the entrepreneur we hope to save entrepreneurs time and money and to ensure that the limited funds they are raising are used for the most important thing: building product for their customers.’

Interestingly, none of the business accelerators (early stage development programmes that offer mentoring on an in-depth level – often with competitor start-ups working with/against each other in parallel with the mentor – plus small and tightly focused amounts of equity-based funding), have contributed to the templates’ development which suggests the more traditional incubator systems are finding it necessary to shorten the time between idea spotting and investment to keep up with the incubator approach.

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