Seed term sheet, clause by clause

Summary of terms for the sale of Series Seed Preferred Stock

• SecuritySeries Seed Preferred Stock of Northwind Labs, Inc. (the "Series Seed").
• Amount$4,000,000 of new money, plus the conversion of the outstanding SAFEs into Series Seed.
• Valuation$16,000,000 pre-money valuation on a fully diluted basis, including an unallocated option pool equal to 10% of the post-money.
• Liquidation preference1x the Original Issue Price, plus declared but unpaid dividends, non-participating. A merger or a sale of the company counts as a liquidation.
• DividendsDividends only when the board declares them, and only when the common stock gets the same dividend. Unpaid dividends do not accumulate.
• ConversionThe Series Seed can convert into common stock at any time, at first one-for-one. It converts automatically at an IPO, or when a majority of the Series Seed agrees.
• Anti-dilutionBroad-based weighted average, with the standard exceptions for employee options, conversions, and stock splits.
• RedemptionNone.
• Protective provisionsA majority of the Series Seed must approve: changes that hurt the rights of the Series Seed, new stock that is senior or equal to it, buybacks (except from employees), dividends, a change in board size, and a sale or liquidation of the company.
• Board of directorsThree seats. The common stock elects two directors, and the Series Seed elects one.
• Information rightsMajor Purchasers (investors with $250,000 or more) get annual and quarterly financial statements and an annual budget.
• Pro rata rightsMajor Purchasers can buy their pro rata share of later rounds.
• Future rightsThe Series Seed gets the same rights as the investors in the next round of preferred stock.
• Founder vestingFounder shares vest over four years, with credit for time already worked. Double-trigger acceleration. Each founder assigns all company IP to the company.
• ExpensesThe company pays the legal fees of the investors at the closing: a flat $10,000.
• No-shopFor 30 days, the company does not look for other investors or a buyer. This section is binding.
• ConfidentialityThe company does not share these terms, except with its board, employees, stockholders, accountants, attorneys, and possible co-investors that the lead accepts. This section is binding.
• ExpirationThis term sheet expires five working days after the date below.