Washington Term Sheet - Royalty Payment Convertible Note

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US-ENTREP-0049-1
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This Term Sheet summarizes the principal terms with respect to a potential private placement of equity securities of a "Company") by a group of investors ("Investors") led by a Venture Fund. This Term Sheet is intended solely as a basis for further discussion and is not intended to be and does not constitute a legally binding obligation except as provided under "Confidentiality," "Exclusivity", and "Expenses" below. No other legally binding obligation will be created, implied or inferred until a document in final form entitled "Stock Purchase Agreement" is executed and delivered by all parties. Without limiting the generality of the foregoing, it is the parties intent that, until that event, no agreement shall exist among them and there shall be no obligations whatsoever based on such things as parol evidence, extended negotiations, "handshakes," oral understandings, courses of conduct (including reliance and changes of position), except as provided under "Confidentiality," "Exclusivity", and "Expenses" below.

Description of Washington Term Sheet — Royalty Payment Convertible Note The Washington Term Sheet — Royalty Payment Convertible Note is a legally binding document used in financial transactions, specifically in the context of startup investments. It outlines the terms and conditions under which an investor provides funding to a company in exchange for future royalty payments and the option to convert their investment into equity. The Washington Term Sheet — Royalty Payment Convertible Note serves as a roadmap for the investors and entrepreneurs, ensuring transparency and clarity regarding the agreement's key terms and provisions. This type of note offers certain advantages compared to traditional debt or equity financing options, making it an attractive choice for both parties involved. Royalty Payment Convertible Notes offer investors a unique opportunity to receive a return on their investment through royalty payments. These payments are typically a percentage of the company's revenue or net sales over a specified period. Investors may choose to receive either a fixed percentage of revenue or a variable percentage that adjusts based on the company's performance. The Washington Term Sheet may include different variations of the Royalty Payment Convertible Note, including: 1. Fixed Interest Rate Royalty Payment Convertible Note: This type of note specifies a fixed interest rate on the invested amount, which is separate from the royalty payments. It ensures that the investor receives a predetermined interest on their investment in addition to the potential equity conversion. 2. Floating Interest Rate Royalty Payment Convertible Note: Unlike the fixed interest rate note, this variation includes an interest rate that fluctuates based on market conditions or an agreed-upon index. The interest rate adjusts periodically, offering potential higher returns to investors in a favorable market. 3. Equity Conversion Option: The Washington Term Sheet — Royalty Payment Convertible Note allows investors to exercise their right to convert their debt into equity shares of the company. This option becomes particularly valuable if the company experiences significant growth or if an exit event, such as an acquisition or initial public offering (IPO), occurs during the investment period. 4. Maturity Date and Repayment Terms: The term sheet provides details on the maturity date, when the note will mature, and the repayment terms, if applicable. Depending on the agreement between the parties, the note may become due for repayment in full or automatically convert into equity at the end of the term. Overall, the Washington Term Sheet — Royalty Payment Convertible Note is a financing instrument that offers flexibility to both startup companies seeking funding and investors looking for potential returns. It combines elements of debt financing, royalty payments, and the possibility of equity ownership in a single agreement, providing a balanced approach for all parties involved in the investment transaction.

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FAQ

Are SAFE Notes Debt? No, SAFEs should not be accounted for as debt but instead as equity. Experienced venture capitalists expect to see SAFE notes in the equity section of a company's balance sheet - therefore, they should be classified as equity, not debt.

So the cash coming in from your convertible note will generally equate to the liability that you add to the balance sheet. And, if your accounting is doing a good job, the accrued interest is a non-cash expense that flows through your income statement and impacts your accumulated net income in the equity section.

A convertible note is a short-term debt instrument that automatically turns into equity when a predetermined milestone or conversion event occurs. Essentially, a convertible note functions like a business loan that converts into equity instead of being repaid..

Common provisions of a convertible debt financing include: The interest rate. Usually somewhere between 4% and 8%. The maturity date. Usually 12?24 months. A mandatory conversion paragraph. ... An optional conversion paragraph. ... A change of control provision. ... A conversion discount. ... A valuation cap. ... An amendment provision.

EXAMPLE: A startup company with 1,000,000 shares of common stock closes a seed funding round of $1,000,000 in the form of a convertible note, with a valuation cap of $5,000,000 pre-money valuation on the next round of financing.

Although it is customary to forego a term sheet, in some cases it may be required if the parties need to negotiate certain terms. It can be advantageous to use a term sheet for the company to easily summarize the terms of the notes for potential other investors purchasing a convertible note.

Convertible Notes are loans ? so they are recorded on the Balance Sheet of a company as a liability when they are made. Depending on the debt's maturity date, they can either be shown as a current liability (loans maturing within 12 months) or as a Long-term liability (loans maturing over 12 months).

As noted above, convertible notes can be classified as all debt, all equity, or a mixture of both. To determine the appropriate classification, we need to consider the relevant definitions in IAS 32 Financial Instruments: Presentation.

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This Term Sheet summarizes the principal terms with respect to a potential private placement of equity securities of a “Company”) by a group of investors ... [ii]. Begin by filling out a Term Sheet. ▫ A term sheet is usually a non-binding agreement outlining the basic terms and conditions of the investment. It ...A line-by-line explanation of a convertible note term sheet to prepare new entrepreneurs to understand and negotiate convertible debt terms ... ... in right of payment with the existing 4.95% Convertible Notes. Upon the issuance of the Notes offered hereby, the outstanding aggregate principal amount of ... The Notes are convertible the next round of preferred stock issued by the Company in an equity financing in which the Company raises at least $ [2,000,000] ( ... A royalty agreement is a contract that grants a licensee the right to use, create, distribute, or sell a licensor's product, service, or intellectual ... Nov 6, 2020 — Signing a term sheet for a convertible note is, more or less, a kind of a no-strings-attached agreement, between a startup and investors. Nov 10, 2015 — The Ultimate Convertible Debt Term Sheet Glossary. Register for “How to Work with Your Advisors, Board Members, and Investors” on November ... By comparison, Sample Term 2-4 is an excerpt from a term sheet titled “Royalty Payment Convertible Note.” First, it can be seen that, in practice, the most ... A convertible note agreement is a term sheet that acts as a no-strings-attached agreement between investors and a startup. Get Started - It's free!

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Washington Term Sheet - Royalty Payment Convertible Note