 Hi, everyone. Great to be here on the Slush Builders Studio today. As the introduction there, I'm going to talk a little bit about term sheets and unpack some of the things which I think are important to know. So to kind of kick things off, I wanted to talk a little bit about why I'm in front of you today and why it's not someone else giving this talk. Firstly, a little bit about Seed Camp. Obviously, I'm a partner there. And Seed Campus was alluded to before. We're a pre-seed and seed stage focused VC. We're sector agnostic. We're investing all across Europe. We're investing between generally in the range of 250 to 500,000 pounds as an initial check into founders. And we're leading pre-seed investing at seed stage companies. I think the introduction talked about 350 companies. Actually, we've been fortunate to partner in back 400 companies now over 14 years. And there's some logos which I put on the side there. I think you can spot that there's seven of those companies which have passed now kind of unicorn status and billion-dollar valuations. Two of them have gone public in UiPath & Wise. And one, the odd one out, is a Helsinki-based seed stage company, which I had to give a shout out to in Flowrite. Maybe one for the future. And so as the intro alluded to, prior to Seed Camp, so I've been at Seed Camp for seven and a half years. And before that, I was a lawyer working across some of this areas in VC and PE law. Also, in case anyone wants to talk to me about anything afterwards, I'm a recent dad. And unfortunately, I'm a long-suffering New Catholic United fan. So I don't have anyone following the Premier League, but we're not doing too well at the moment. Cool. So what we want to talk about in this session, which this obviously slide alludes to and the intro is talking about as well, is I want to unpack kind of like the key elements of a term sheet. Obviously, we've got like 27 minutes to go through stuff. So this is quite a lot to go through. What to look out for. And then in particular, trying to kind of weave in some more stories throughout. So there's a lot of things I think that as investors, actually the majority of the things that we interact with with founders where founders and the companies and the people who are building them, you guys know so much more than us about. Whereas I think the small number of things, which maybe we have more interactions with, are around fundraising and legals and the like. So hopefully my goal is to try and pass on some of that knowledge during this session. And why is this important? I love this picture because what I say when it comes to legals and it comes to setting things up, it's prevention is better than the cure. You know, I think that if you can set your kind of legal processes up in your term sheets in the right way at the very beginning, then it's a lot easier than trying to fix that afterwards. It's a lot cleaner, it's a lot faster, it's a lot more cost effective. I mean, I think that proves this picture. I think if they just tied those containership down correctly, then it would be a lot easier than doing the cleanup. Great, so to kick things off, I think that the word term sheet has been kind of bounded around a lot. I know the talk before was going into fundraising and Carlos has got one coming after me which goes into fundraising. And it's often the kind of end of the fundraising process. So almost like we're doing our talks backwards is the kind of term sheet. It's something you hope to get. It's kind of the thing at the very end which hopefully you'll have kind of like competing numbers of those from various different investors. But what is it? And what does it look like? So I wanted to put this picture up just to say, you know, this is a kind of standard looking term sheet. But also the talks about which has the kind of watermark there, which I'd recommend everyone go check out, is seedsummit.org. That's an initiative which we kind of helped to spearhead in connection with a number of other VCs funds and actual lawyers to open source a lot of legal documents. And so that's a good chance for you to go and actually download some term sheets, have a look at some of the terms which are in those, and even use them as a basis for starting kind of like discussions if that's helpful. But in terms of what they look like and how long they are and all this kind of stuff, I've seen term sheets that are for rounds of between $150 million which are one or two sides. I mean, there is no real logic to that. But then I've seen kind of term sheets for smaller rounds of $2 million which could be 8 to 10 sides. So in terms of length, it varies a lot. I think there's definitely a trend towards them becoming slightly smaller and shorter even for those larger rounds. And then also the kind of thing to flag is, generally speaking, the majority of it is classed as kind of non-legally binding. There might be a couple of clauses in there, often things like confidentiality or no-shop clause which may actually be legally binding and defined as so. But the idea behind it is, even if it's not legally binding, you as a founder, once you go into that position of actually signing a term sheet, I think that it's morally binding. It is something that you have committed to and that you are like moving forward with going to kind of do a deal. And that's the same with investors as well. I don't think as investors, it's incredibly bad for them to go back on something which you've agreed. And particularly once you've got to the point of signing. So whilst it might be legally binding, it is definitely morally binding, which I think this picture nicely sums up. So kind of turning from what is a term sheet to what is in a term sheet. Again, for the purpose of this talk of 20 minutes to go, I've tried to kind of simplify it and put it into three broad buckets of what you'd expect to see. So I think you'd expect to see a clause in areas which cover economics, areas which cover investor protections, and areas which cover governance. And there are obviously other stuff in there, but they're the three things which I think we've got enough time to really go into and start to unpack today. So my idea is here that I'm gonna go into each of these, pull out a couple of the clauses, and then give some ideas of what to think about and what to look for if you're approaching this when you've got a term sheet and you perhaps investing. So I'm, again, like giving some tips away that might be used against me at some point, but happy to. So firstly, and I think when we do think about this, it's probably the one which is most important, the economics, the valuation. If you can't agree the commercials of this, it kind of doesn't make sense to go into the nitty gritty of some of the other stuff that we'll get to during this talk. So it's definitely the thing to agree upfront, but even when you're agreeing it, I think there's some terms which can be helpful to understand exactly what they mean, and so that, again, you're in the best possible position to go through and actually kind of finalize some of these points. So when we talk about valuation, there are lots of terms which get knocked around, but I think the couple which is good to really just highlight what the difference is above like pre-money and post-money. So usually you'll see a valuation which is often pre-money and the post-money will be taking that number. So say it's like $6 million or something and then adding the round size. So say you were raising $2 million and you would get to $8 million as the post. Now that's important because it's very important when you start to think about dilution and how you're treated as founders and what you're actually giving away in the company. Because if you think a pre is a post, then the numbers could be like materially different. So super important thing to have like top of mind when you're reading them and discussing them and even talking with investors prior to maybe signing anything. The other thing which I know there's been a discussion on in a talk on already is the idea of option pool. Obviously what an option pool is, is it's carving out part of your cap table to make available for future hires. Incredibly important provision that we think that can be a real material change in terms of how you can bring on fantastic talent. That's something which is also usually contained within this broad economics because they all interact, which I'll come to in a moment. And then finally round size, we spoke about that before. Usually the investor will kind of cap how much they want you to raise and might even put a minimum about how much you need to raise before that you can kind of move forward with closing out the round. So important kind of like pieces within the economics umbrella or bucket to unpack. Now in all of this, what I'd recommend is that the cap table is your friend as I talk there. I think the best founders, and I'm having a conversation this week with a founder who's got multiple offers and is trying to understand the difference to them is if you understand your cap table, if you understand exactly the shares that you've issued, the ownership which is coming from a previous round or if your founders just how you split across and the differences between if you accept this offer versus this offer and you can move quickly through those, it just puts you in such a stronger position to be able to negotiate well with the people who you're negotiating with. So I think cap table is incredibly important. If you are interested in learning more about cap table, we did a video series, my colleague Felix and Carlos I'm called Felix on cap tables. So if you go to the seed camp website, you can see a lot more detail there. Oh, something's going on with the slides but I'm sure they'll get fixed. So this should say what to look out for. And so what to look out for within these. So valuation, we spoke about it a little bit just before in terms of like founded, so I think there's three things. So in each of the what to look out for is I'm going to try and summarize it with three things. So I'd say valuation, there's always a temptation to go for the highest valuation, right? And I think the number one thing you should be thinking about is your dilution. You know, you don't really want to be diluting more than 20, maybe up to 25% maximum at the earliest stages in the rounds that you're raising at seed and series A because you want to be going forward from there in a position where you still have a significant stake in the company because you're building the biggest value. So that's an incredibly important thing to kind of optimize for in one way. But then equally, you don't want to, this is where the next two points come in. So that one is to push the valuation high. And again, talking against myself because as investors we might not be on that side of the negotiation, but the next two points I think are just things to consider as you try to optimize for that one. And they are the momentum to close. So if you agree with your, what's going on here, if you agree with your investor that a high kind of lead amount, then you still might have a proportion to fill of that round and you don't want to have that number too high so that you can't close out the rest. So say if you agree a 25 million valuation and the investor is going to put in half, but if you can't find the rest of that money to fill it in, then you're going to slow down the whole process and there's nothing worse than a slower kind of, a slower fundraise. So momentum to close is important when thinking about optimizing valuation. The other thing is growing into your valuation. You know, some of the things which we'll come to later talk about what happens if you raise at a higher valuation than the next round. So I would just say that it's good to kind of pitch at a level that allows you to grow in kind of about three times probably larger at the next fundraise which you do in 12 to 18 months time. So again, you know, if you're the absolute edge of what you can get, just be aware that people are going to be looking at the next round and making sure that you're kind of growing into that because you do not want to go down the root of a down round. Next up, that's the slide looks warm, which is nice considering the weather outside. So option pool, you know, we spoke about it before. I think the things when I'm, you know, speaking to founders and they've got offers that they're considering and thinking about are the size of that option pool, the hiring plan that they have in place and when it's set up and I'll come to that in a moment. So the size, you know, again, I think it's incredibly important to not be too on the small side here because I think it's a great way, as I said before, for you to be able to incentivize really important hires. The way that you would potentially negotiate this to a smaller level than the investor might want is to walk through the hiring plan. If you've got a very complete team and then you, and then they're asking for you to blow out your option pool to 15, 20%, then it's perfectly reasonable for you to go out back and say, look, I already know who I've got in place. I already know who I want to hire and this is the period of time which I'm going to do that. And therefore, you know, the option pool should be lower because effectively that is a way that they are kind of manipulating the valuation there. So I think that whilst option pool is incredibly important, mapping that to your hiring plan and the specific needs of your company is also a really, really good way to think about how you can, you know, put that into a place which everyone is comfortable with. And then the when it's set up is a bit of the kind of, you know, a bit cheeky in terms of what this means for evaluation because typically the option pool comes pre the actual new investors coming into the round. That means that you as founders and existing investors, which obviously as an early stage investors happens to us, wear the dilution of that option pool set up or expansion. Now, it's another point which can potentially be negotiated in certain circumstances where you could say, you know, maybe half of it comes pre and some of it comes post. But just to make people aware that it is quite typical that it comes pre and the investors aren't diluted by it. But it's just something again, where a real clear understanding of your cap table can give you a massive edge because it really allows you to be able to move quickly and understand all these things. So my idea is just to try and impart any of that knowledge I can. So that's kind of covers a lot of the, what we want to talk about economics. Obviously there's loads more on valuation and things, but I think, you know, Carlos might touch upon some of that in his fundraising talk and how to optimize for that. But I want to also touch upon some investor protections because there's some clauses here which even if the goal is just to introduce them and we go into some more detail on a series that Carlos and I actually did, is a bit of a double act called Legal Hour, which is again available on CCAM website. So I'd go check that out if you want some more kind of like details. But I want to just go into kind of some of the key terms and what they mean. So these are some words which get knocked around a lot and I just want to try and unpack those. And then we're going to talk about two of these in the time we've got and then we'll do a little bit on governance. So in terms of some of these key terms and what they mean, participation rights, that might be something that can sometimes be called pro-rata rights, can sometimes be called kind of preemption rights or get interchangeably, but participation rights for the purpose of this, what that means is that's your investor or the person who's investing in your company's rights to continue to invest a future rounds to protect that stake. So for instance, you know, for an example, at Seed Camp, you know, we're a little bit unusual. We target between five and seven percent as an ownership stake in the companies we invest in, but we want to be able to protect that stake in future rounds. So we want to be able to do, if we're investors in the pre-seed, you know, we want to be able to invest to protect that stake in the Seed Round, the Series A, and perhaps beyond, you know, in some of the companies like the hoppins of this world where we came in super early, that's been incredibly important for us to be able to follow on in those winners. And so that's what participation rights means and it's very important. We're going to come in a bit about some things to consider and to think about as founders with regards to that. The next term, which I think is incredibly important is the vesting and vesting schedule. It's super important for you as founders to obviously understand what vesting and vesting schedule is because this is the mechanic that the vesting, that entitles, you know, the company or you have to return your shares in the event that you leave as a founder. So obviously it can be super material in terms of what it can mean to your equity stake. So again, a very, very important thing and the vesting schedule itself is often over a period of time. I think the most typical thing that we see now is that vesting takes place over four years and often there is some form of a cliff, maybe about a year and then you catch up at 25% and then vests kind of regularly on from that. But again, we're going to go into that in a little bit more detail in another slide. Two other points which I want to touch upon which I'm not going to go too much detail about, but you should, if you want to read anything more, there's some stuff available which I've blogged on these topics before. So one is the liquidation preference. That's a right which investors typically get to receive their kind of investment amount back in the event, in advance of other investors in the event the company sells for below the valuation they got in at. So that's a downside protection in the event. There's a sale which is pretty low to be honest. And it's something which is very common if it's a one times non-participating preferred. Again, if you kind of Google liquidation preference Tom Wilson, you'll get a post which goes into more detail then I can cover in a few minutes on stage. And then the last point is anti-dilution which is another super important one as a downside protection when you think about if you raise that high valuation. So we talked to before about watching out for a down round. It's clauses like this that really kick in when you go for a super high valuation and then unfortunately potentially have to raise it a lower valuation. What it means is that it's a provision which allows for those investors who invested the high valuation to be compensated so that they're not in a lower position. They haven't taken any dilution even if you've raised it a lower valuation subsequent to that. So they don't feel in this market where everything's up and to the right and there's just like an abundance of capital that they're necessarily gonna kick in. But if, and you should always be thinking a little bit about this, the market does change then clauses like anti-dilution are obviously gonna come into effect. But again, it's not unusual for them to be in there. So what to look out for? Now I'll come to the kind of the logic of the background of the stag picture but what we're talking about here in terms of participation rights is I think some of the things to unpack and think about. Number one is your investors fund model. So understanding what they actually want to do. Like I spoke before about seed camp and how we think about participation rights. Super important for us but we're not trying to like build ownership generally. We get our ownership when we come in. We're happy with our six or seven percent or sometimes on the lower end of that and we'll continue to invest to kind of protect that position in future rounds where we can, you know, we're not a massive fund. So there's other other times when that gets challenging but some other investors might have a different fund model. They might start with a small stake and want to build it. They might be that they're a multi-stage fund who doesn't do much at the stage which you're investing if you're raising a seed round. And so then it's important. Okay, well, if you understand that it's like what does that mean for the next round if they don't lead that next round, for instance. So all of these things and how they interact it's, you know, just kind of putting these ideas out there so that you can research that. And to be honest with you, you can just ask the question to your investor. You know, you don't have to have the answers to these. You don't have to have figured it out. You just have to have like an honest and open conversation. And it's the start of a long-term relationship when you sign a term sheet. So everyone should have that kind of honest and open conversation about some of these points. Other things to look out for when we're talking about participation rights or preemption rights or whatever we want to call them. Another clause is super preemption. That's the idea that if say in Seacamps example we started with six percent and we could have a super preemption right in there which allows us to invest as if we were 10 percent. Now, we don't typically ask for that. And it's something that I probably, if I was a founder, I'd advise against you kind of like going into because it just can create more signaling problems because then people at the next round will look at it and go, well, did they do their super preemption? Did they not do their super preemption? Why didn't they do it? And it just creates another layer of things to our questions to answer. So it's not a walk away term, but again, it's just something I think in an ideal world with all of this you want to try and keep it as clean and as standard as possible. So I think moving away from that whilst you can be creative between each other and I think that I'm all for creativity, I think sometimes it's good to keep things as standard as possible. But I want to let you into kind of like a little secret in terms of like participation rights and what happens in real life. So you've given these rights, investors have them, investors can legally follow on to the stake that they've got in the company. The reality is, and this is where the kind of picture of the start comes in, like in this market in particular, and I'm speaking from experience, we're in a fortunate position to back some companies which have gone on and had highly over-subscribed rounds after us or series A rounds or series B rounds even, that investors have to earn the right pretty much to be able to continue to invest in the company. I do believe that where investors have delivered on the promises which they've offered to you as founders, then I think it's great and I think it's really good practice going to that kind of moral connection for you to allow those investors to at least participate up to their kind of pro rata, so their percentage, and in exceptional circumstances where investors have come in and said, look, we didn't get a full allocation that we wanted to on the first round, we actually would love to be a bit higher, then I think it's okay also to even give them a little bit more, but I think the key here is that you earn the right, in my view, to be able to do that because you as founders are doing the hard work. Next one I want to talk about, and I couldn't resist as someone in the VC industry trying to get a picture of a Patagonia vest as a background, it's vesting and why I think it's probably one of the most important clauses in there. I think that this section almost about investor protections is a bit misleading here because I actually think that vesting is as much a founder protection mechanism as it is an investor one. I think that this idea of giving back your shares is hugely emotional and I totally, totally get it and I've had this conversation with countless founders when they see it there and they're like, hold on a second, we've built value in the company. If I leave after a year, is it right that I don't leave with anything? And I'm like, the way I would phrase it is it's not thinking it from that but it's thinking it from, okay, if there's three founders and one of those founders and it's something that happens, we've been fortunate to back 400 companies over 14 years and we have seen founder fallouts countless times and if you don't have vesting in place, the idea that one of those founders would leave with a third of the company and then the other two founders would just continue to generate value which this founder also benefits from can be an incredibly toxic situation. So that's why I think of it as almost like a protection amongst founders as much as a protection for investors as well that they're investing in this collective group for a period of time. So that's just an interesting kind of mindset to think about. The other thing I'd say is this idea of starting the clock now. If you're starting a business, if you're the earliest possible stage, I'd recommend again checking out seedsummit.org. There's a founder collaboration agreement there. Get something in place, even if it's not legal, even if it's not super fancy, start the kind of vesting clock now for two reasons. One, for the number one point there to protect against someone leaving and having a claim for a stake in the company. Two, for this start the clock. It might mean that when you go to those first round of institutional investors who will 100% put this in place. I've never seen an institutional fundraising round with any VC not have vesting in some capacity. They will ask usually for you to start again but it might be that if you say, well, we've actually had it in place for a year or we've actually had it in place for six months. They might say, well, okay, that's on of that. Let's stay in for six months. So you're in actually better position if you started earlier. The last thing I think about again with vesting is something I'm quite passionate about and written about a bit before because I think it's super important is this idea of it's a long-term game. I think you want to, as much as possible, stack and think about all of these terms in terms of is this, the outcome is pretty binary, right? You're either gonna be successful, wildly successful and I hope everyone in this room is gonna be wildly successful or it's not gonna work out. So you wanna put these things in place with a view to that rather than to optimize for things which might happen in between like someone leaves or someone steps away. So I think if you approach with this long-term game, you approach it with this founder protection mindset, I think that the vesting clause is incredibly important and makes a ton of sense. So the last one I wanna quickly cover in the three minutes or so I've got left is governance. So there's lots we could do here but I'm gonna talk quickly about board composition so who and what are on your board. Information rights, what that is is just a provision where your investors receive information in the company like legally I think it's incredibly important as well because I think that for you to get the most out of your investors, you wanna be as open with information as possible so that they are most informed because constantly we're talking to the next stage of investor for the company. And I feel like my job partly is just to kind of like pitch the companies which we've already invested in to them and if I'm super informed, it allows me to be a better kind of like salesperson on behalf of the founders we back. So it's kind of how I'd think about information rights. Consent rights obviously the idea that certain decisions might be reserved, I just keep that to stuff which doesn't in any way inhibit you to run the company and I think that outside of that they should be pretty uncontroversial. So the final what to look out for section is on board composition, again nice kind of tropical theme here which is so suitable for slush. So this is this idea that I'm gonna kind of focus this last bit on if it's a seed stage business or if it's an early stage business because I feel again, pretty passionate about at least some of these points. Size really matters when you come to boards. Firstly, you don't necessarily need a board. If you're a pre-seed company, say you probably don't. Most of the companies we work with, yes we have the right as a fund to be a board observer. We don't take direct the seats but I don't think you necessarily need one. I think you want a good group of people who you can rely upon but I think that if we are going into the world of boards, size matters, you wanna keep them small. Don't go around kind of like throwing board seats for everyone because I think that it's just administratively harder and you won't get as much out of that group of people if it's large. Stage matters. I'd say I would optimize for people who are experienced about working with companies at your stage. So if you're at a seed stage, they're seed investors, they're early stage angels who've been in your shoes. They're founders who've been in your shoes. Don't bring on board like big execs from late stage because they'll be fantastic for that stage of your growth but they won't be and it could be harmful for the other stage. And the final point I'd say frequency. Don't let an investor come in and say you've gotta have eight, 10 boards a year or something crazy like that. You've got a million and one things to do as founders which are incredibly important, incredibly time consuming. Only use the board in a way that can be helpful for you because that's what we're all here for. We're just here to kind of be supportive to you guys as founders because you're doing the hard work and building the real value. So I think with that, that's all I wanted to cover with 50 seconds to go. So that's my 27 minutes on Termsheets 101. Thank you very much.