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Deal Structure and Deal Terms

The document discusses deal structures and terms. A deal structure describes the agreement between a buyer and seller, including specifics on control and payment terms. Common deal structures include all-cash deals, deals with down payments and financing, and equity-based deals. Deal terms in a term sheet lay out the key aspects of an investment in a non-binding way, including company valuation, ownership stakes, voting rights, and exit scenarios. Term sheets serve as templates for formal binding agreements.

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CONCORDIA RAFAEL IVAN
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163 views11 pages

Deal Structure and Deal Terms

The document discusses deal structures and terms. A deal structure describes the agreement between a buyer and seller, including specifics on control and payment terms. Common deal structures include all-cash deals, deals with down payments and financing, and equity-based deals. Deal terms in a term sheet lay out the key aspects of an investment in a non-binding way, including company valuation, ownership stakes, voting rights, and exit scenarios. Term sheets serve as templates for formal binding agreements.

Uploaded by

CONCORDIA RAFAEL IVAN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Deal Structure and Deal Terms

Deal Structure

A deal structure is a term used to describe the terms


of the agreement between a buyer and seller that
apply in a given business deal.
A deal structure is present in just about any
transaction that involves the establishment of some
sort of covenant between the parties involved,
including venture capital schemes and company
acquisitions that require all parties to perform
certain tasks in order for the deal to be considered
complete
Deal Structure

A deal structure will also address the circumstances


under which the buyer is allowed to assume control
of the asset. This often relates to the terms of
payment that are spelled out in the contract.
Deal Structure

The deal structure will also often include specifics


regarding the rights of the seller in the event that the
buyer does not live up to the commitments made in
the contract
Deal Structure

The general idea of a deal structure can be related to


the sale of all sorts of assets, beginning with shares of
stock and moving all the way through to a business
acquisition. In each situation, the structure will
provide all parties concerned with certain rights that
enable them to benefit from the transaction, and also
certain responsibilities that they must manage in
order to continue enjoying those benefits
Common Deal Structures

Clean Break (all cash, upfront)


Gap Closer (down payment + financing)
Deal Saver (down payment + financing + earn)
The Retainer (down payment + equity)
The Buyer Magnet (100% financing +earn out)
The Trade-off (equity swap)
Deal Terms

A term sheet or deal terms is a nonbinding


agreement that shows the basic terms and conditions
of an investment. The term sheet serves as a
template and basis for more detailed, legally binding
documents. Once the parties involved reach an
agreement on the details laid out in the term sheet, a
binding agreement or contract that conforms to the
term sheet details is drawn up.
Deal Terms

The term sheet should cover the significant aspects


of a deal without detailing every minor contingency
covered by a binding contract. The term sheet
essentially lays the groundwork for ensuring that the
parties involved in a business transaction agree on
most major aspects.
Deal Terms

Term sheets are most often associated with startups.


Entrepreneurs find this document crucial for
investors, often venture capitalists (VC), who may
offer capital to fund startups. Below are some
conditions that a startup term sheet defines:
 It is nonbinding.
 Company valuations, investment amounts, the percentage of
stakes, and anti-dilutive provisions should be spelled out clearly.
 Voting rights.
 Liquidation preference
 Investor commitment.
Similar Documents to Term Sheets

A term sheet may seem similar to a letter of intent


(LOI) when the action is predominately one-sided, as
in acquisitions, or a working document to serve as a
jumping-off point for more intensive negotiations.
Four Categories of Deal Terms

Deal Economics – Investors want to make sure they get a big enough
slice of the pie to make the investment worthwhile on a risk-adjusted basis.
Investor Rights / Protection – Investors want to make sure no future
financing deals contain terms which unduly diminish the value of their
investment or lead to someone moving into a superior liquidity position
(without paying appropriately for that right).

Governance, Management & Control – Investors want to know what’s


going on in the company, have a say in critical decisions, and protect
against founder behavior that could be damaging to the company.

Exit / Liquidity - Investors want to make sure they maximize the chances
to get their money back in all possible exit scenarios (positive or negative),
even if they have to force such a situation to occur

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