Term Sheet

The process of executing a term sheet is rather basic: RSCM signs, we discuss, and you sign. It's the terms that matter. When we lead a round, we use an absolutely standard term sheet developed by a major Silicon Valley law firm. Feel free to review the full template. Here are some highlights of the non-valuation terms.

• Liquidation Preferences. We require what is known as a "1x non-participating liquidation preference". If there is a liquidity event, we will have our choice of getting our original investment back or getting a share of the liquidity equal to our ownership percentage, but not both.
• Board Seats. We do not want a designated Board seat. Our only requirement is that at least one founder be on the Board until the next round. However, if you have other investors who want to participate in the round and require a Board seat, we are happy to accommodate that need.
• Founder Vesting. We require that all founders effectively vest their equity, whether through an equity plan or buyback agreement. If the company was founded several years ago and any founders have less than two years of vesting left, we typically require those founders to reset their vesting period so there are at least two years remaining.
• Salary Restrictions. We require that founders as a group take a 50% salary cut relative to their aggregate fair market value, for one year or until the company becomes cash-flow positive. Founders may allocate this cut among themselves to accommodate different income requirements and equity allocations.
• Information Rights. While we won't want a Board seat, we will need to supervise our investment. So we require a short monthly and full quarterly report from each portfolio company.
• Legal Fees. We will pay our own legal fees. Moreover, we will supply you with template investment documents that correspond to the Term Sheet. This approach can often save over $10,000 in transaction costs.
• Binding Terms. The Term Sheet is non-binding except for a "no shop" provision. While you'll be free to pitch other investors on co-investing in the round, you'll have to wait 30 days to shop for different terms.

You may wish your counsel to review the binding clause and advise you on various aspects of the proposed terms. However, to reduce legal costs, we request that you instruct your counsel to refrain from changing any of the term sheet language unless there is a truly significant issue and you discuss it with us first.