
Operating a travel booking platform: simple intermediary or travel agency?
You own or develop an online platform for travel services that can be booked by tourists, and you have at least once …
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A termsheet is a “non-binding” agreement containing the main terms and conditions of an investment.
The termsheet is the initial document in an investment process that lays the foundation for the final investment agreement and enables alignment between investors and founders.
When we talk about the financial side of the investment, the first aspect we think about is of course the valuation of the company, the invested amount and the percentage of the company received by the investor/investors.
Although company valuation is very important, as it is practically the starting point in an investment, as a founder or investor you should not lose sight of the other financial terms that can ultimately influence the outcome of an investment.
Such terms may refer to different rights and obligations of investors or founders, such as:
Apart from the financial side, the termsheet also includes mechanisms to ensure that the investor can control the management of the company and/or have a veto power in important decisions.
For example:
In addition to the financial and control side, a termsheet contains other clauses that do not have such a large impact on the investment but are nevertheless important. This category includes clauses such as confidentiality, no-shop (i.e., exclusivity), lock-up period, etc.
The confidentiality clause refers to the obligation of the parties not to disclose any information related to the investment.
The no-shop (exclusivity) clause refers to the founders’ obligation not to negotiate with other investors for a certain period. The no-shop (exclusivity) period covers the time needed to conduct the due diligence, negotiate, and close the investment agreement and ensures investors that they will not waste their resources on an investment process that may not be likely to close.
The lock-up period refers to the obligation of the founders or investors not to sell shares in the company for a certain period after completion of the investment.
Usually, a termsheet is indicated as being non-binding - i.e., it does not produce binding effects.
But this non-binding nature refers to the fact that signing a termsheet does not guarantee completion of the investment. For example, following the results of the due diligence process, an investor may decide to withdraw from the investment. Or during the negotiation of the investment agreement, founders and investors may not reach a consensus.
However, certain clauses in the termsheet are binding and legally enforceable - for example, the confidentiality clause, the no-shop clause (exclusivity).
Even if signing a termsheet does not guarantee the investment, you should pay close attention to its clauses, as its content determines the final structure of the investment.
At Law of Tech we assist you throughout the investment process:
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