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Overview

The Series Seed Equity Term Sheet summarizes the principal terms for a preferred stock financing. It serves as a framework for negotiation and guides the preparation of definitive legal documents.
Except for the “Binding Terms” section, term sheets are typically non-binding expressions of intent. They do not create legally enforceable obligations until definitive agreements are executed.

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Document Information

Source: Cooley LLP Series Seed (v3.2)
Format: Available in .md and .doc
OpenLaw Template: Series Seed Term Sheet (Equity Financing)

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Key Sections

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Offering Terms

The core economic terms of the financing:
Shares of Series Seed Preferred Stock, a new series of preferred stock created specifically for this financing round.
The total amount of new capital to be raised. May also include conversion of outstanding convertible securities (notes and/or SAFEs) and accrued interest.Example: “1,500,000inaggregatenewcapital.Inaddition,the1,500,000 in aggregate new capital. In addition, the 500,000 of outstanding convertible securities and all accrued but unpaid interest thereon will also convert on the same terms as stated herein.”
Accredited investors approved by the Company. All investors must qualify as accredited investors under Regulation D of the Securities Act.
The Original Issue Price is calculated based on:
  • Pre-money valuation
  • Available option pool (expressed as percentage of post-money fully diluted capital)
  • Treatment of convertible securities (included or excluded from pre-money shares)
Formula: Shares outstanding (pre-money) / pre-money valuation = price per share

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Principal Rights and Preferences

Standard Terms: 1x Original Issue Price plus declared but unpaid dividendsDistribution Order:
  1. Series Seed holders receive their Original Issue Price plus dividends
  2. Remaining proceeds distributed to Common Stock holders
Deemed Liquidation: A merger, reorganization, or similar transaction is treated as a liquidation event, triggering the liquidation preference.
Series Seed uses non-participating preferred stock, meaning Series Seed holders receive either (a) their liquidation preference or (b) their as-converted common stock value, whichever is greater.
Each share of Series Seed converts to Common Stock on a 1:1 basis (subject to anti-dilution adjustments):
  • Voluntary: Holder can convert at any time
  • Adjustments: Proportional adjustments for stock splits, dividends, etc.
  • Anti-dilution: Optional broad-based weighted average protection against down rounds
Conversion Ratio = Original Shares × (Original Price / Current Price)
General Voting: Series Seed votes with Common Stock on an as-converted basis for most mattersProtective Provisions: Approval of majority of Preferred Stock required to:
  • Adversely change rights of Preferred Stock
  • Change authorized number of shares
  • Authorize new series senior to or on parity with Preferred Stock
  • Redeem or repurchase shares (except per employee agreements)
  • Declare or pay dividends
  • Change number of directors
  • Liquidate, dissolve, or undergo change of control

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Investor Rights

Major Purchasers (those investing at or above specified threshold) receive:
  1. Annual financials: Unaudited balance sheet, income statement, and cash flow statement (audited if available)
  2. Quarterly financials: Same as annual, subject to year-end adjustments
  3. Inspection rights: Right to visit properties and examine books and records at reasonable times
These rights terminate upon IPO or when the holder no longer qualifies as a Major Purchaser.
Major Purchasers have pro rata rights to purchase their proportionate share in future equity issuances.Pro Rata Calculation:
Pro Rata Share = (Investor's shares on as-converted basis) / 
                 (Total fully-diluted shares)
Subject to customary exceptions (employee options, acquisitions, etc.)

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Governance

Board composition is negotiable. Common structures:Founder-Controlled:
  • Common stockholders elect majority of directors
  • May include one Series Seed representative
Balanced Board:
  • Common stockholders elect some members
  • Series Seed holders elect some members
  • Common and Series Seed together elect independent member(s)
Example: 5-person board with 2 Common reps, 2 Series Seed reps, 1 mutually agreed independent

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Other Key Terms

Company typically reimburses counsel to Purchasers for a flat fee (commonly $10,000) to cover legal expenses for transaction documentation.
Most Favored Nations: Series Seed receives same rights as the next series of Preferred Stock (with appropriate adjustments for economic terms).This ensures early investors aren’t disadvantaged by better terms in later rounds.
Vesting: Typically 4-year vesting with 1-year cliffAcceleration: Full acceleration on “Double Trigger” (change of control + termination)IP Assignment: All key holders must assign relevant intellectual property before closing

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Binding Terms

Unlike the rest of the term sheet, these provisions are legally binding:
For 30 days, the Company agrees to:
  • Not solicit competing financing offers
  • Not disclose terms except to officers, directors, key service providers, and potential Purchasers in this financing
Violating the no-shop provision can create legal liability even though the rest of the term sheet is non-binding.

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Standard Documentation

The term sheet references documents generated via https://cooleygo.com/seedequity/. Final documents will be identical to those generated forms except for modifications specified in the term sheet.
The financing package includes:
  • Preferred Stock Investment Agreement
  • Restated Certificate of Incorporation
  • Board Consent
  • Stockholder Consent
  • Investor Questionnaire

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Negotiation Tips

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For Companies

  • Focus on valuation and option pool size
  • Minimize protective provisions where possible
  • Negotiate board composition carefully
  • Consider impact of anti-dilution protection

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For Investors

  • Ensure Major Purchaser threshold is appropriate for your investment size
  • Verify information rights meet your needs
  • Understand liquidation preference and conversion terms
  • Consider board representation rights

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Common Variations

Term sheets may specify whether outstanding convertible notes/SAFEs are:
  • Included in pre-money share count (dilutes new investors)
  • Excluded from pre-money share count (dilutes founders and common holders)
  • Converting with or without discount/cap
May be:
  • Omitted entirely (most founder-friendly)
  • Broad-based weighted average (standard)
  • Narrow-based weighted average (more investor-friendly)
  • Full ratchet (rare, very investor-friendly)
The unallocated post-money option pool percentage affects:
  • Effective price per share
  • Founder dilution
  • Ability to hire and incentivize employees
Common range: 10-20% of post-money fully diluted capitalization

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Next Steps

Once the term sheet is signed:
  1. Generate definitive documents using CooleyGO tool
  2. Complete due diligence (legal, financial, technical)
  3. Obtain board approval via Board Consent
  4. Obtain stockholder approval via Stockholder Consent
  5. Collect investor questionnaires to verify accredited investor status
  6. Execute Purchase Agreement and close financing

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