What is the best way to align the terms of a term sheet with your company's financial goals?

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A term sheet is a document that summarizes the key terms and conditions of a potential investment deal between your company and an investor. It is not a binding contract, but it sets the stage for the final negotiation and due diligence process. How can you align the terms of a term sheet with your company's financial goals and avoid pitfalls that could harm your future growth and valuation? Here are some tips to help you navigate this crucial stage of fundraising.

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1 Know your valuation and dilution

One of the most important and contentious aspects of a term sheet is the valuation of your company, which determines how much equity you will give up to the investor in exchange for their capital. You should have a realistic and defensible valuation based on your market size, traction, revenue, growth potential, and competitive advantage. You should also be aware of how much dilution you are willing to accept, and how it will affect your ownership and control over your company. Dilution is the percentage of your equity that you lose when you issue new shares to investors or employees. You should aim for a balance between raising enough money to grow your business and retaining enough equity to motivate yourself and your team.

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Mansour Abakar

Trade Finance Specialist
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L’émission des nouvelles actions permet à l'entreprise de se financer et avec l'objectif de s’étendre ou développer ses activités mais pour y arriver il faut évaluer soigneusement vos actifs, la taille du marché et vos chiffres d'affaire et étalez vos avantages concurrentiels et potentiel de croissance pour convaincre l'investisseur afin de déterminer un montant de capital vous permettant de générer des bénéfices e s’acquitter de vos dettes à courts termes et les dividendes aux actionnaire

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2 Understand the different types of investment

Another key aspect of a term sheet is the type of investment that the investor is offering, which can have different implications for your company's financial structure and governance. The most common types of investment are equity and convertible debt. Equity is when the investor buys a share of your company at a fixed price per share, and becomes a shareholder with voting rights and dividends. Convertible debt is when the investor lends you money that can be converted into equity at a later date, usually at a discount or with a cap on the valuation. Convertible debt can be more flexible and less dilutive than equity, but it can also create more debt obligations and interest payments for your company.

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Mansour Abakar

Trade Finance Specialist
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Pour mieux choisir vos investisseurs, il vous faut des analystes qui comprennent vos états financiers et les adaptes aux types d'investissements que vous ne regretterez pas dans le long terme. par les titres financiers il y les actions et obligations, les actions qui sont des titres de propriétés permettent à l’investisseur d'avoir droit au vote et dividende et la dette convertible est plus souple et flexible, les obligations qui sont des titres de reconnaissance de Dette, il peut être des emprunts indivis ou obligataires, par ce titres avec des délai de remboursement plus long et des taux d’intérêt raisonnables vous pouvez opter aussi à ce financement

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3 Negotiate the key terms and conditions

When considering a new investment, there are several important terms and conditions that can affect your company's financial performance and strategy. Liquidation preference determines the order of priority in which investors and shareholders get paid in case of a sale, merger, or liquidation of your company. Anti-dilution protects investors from being diluted by future rounds of fundraising. Board representation allows investors to appoint or elect members of your board of directors, while vesting is the process by which you and your team earn your equity over time. It is essential to negotiate these terms and conditions carefully and seek legal and financial advice if needed. You should also compare different term sheets from different investors, evaluating the pros and cons of each offer. Ultimately, do not accept a term sheet that is too unfavorable or risky for your company, or that does not align with your vision and values.

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4 Prepare for due diligence and closing

Once you agree on a term sheet with an investor, you are not done yet. You still have to go through the due diligence and closing process, which can take weeks or months depending on the complexity and size of the deal. Due diligence is when the investor verifies the information and documents that you provide about your company, such as your financial statements, contracts, intellectual property, legal compliance, and team. Closing is when you sign the final legal agreements and receive the funds from the investor. You should prepare for due diligence and closing by being transparent, organized, and responsive. You should also maintain your business performance and momentum, and keep your team and stakeholders informed and engaged.

Aligning the terms of a term sheet with your company's financial goals is not easy, but it is essential for your long-term success and sustainability. By following these tips, you can increase your chances of securing a fair and favorable deal that will help you grow your business and achieve your vision.

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5 Here’s what else to consider

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What is the best way to align the terms of a term sheet with your company's financial goals?

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1 Know your valuation and dilution

2 Understand the different types of investment

3 Negotiate the key terms and conditions

4 Prepare for due diligence and closing

5 Here’s what else to consider

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