Term sheet items you should never concede
Fundraising means taking money and entering a contractual relationship at the same time. I have compiled the clauses that cause trouble later.
The structure to understand first
Venture investment in Korea is mostly made in the form of redeemable convertible preferred stock. It carries rights that differ from common stock, and the scope of those rights is set in the contract. If you sign after looking only at the investment amount and the equity stake, you find out about the rest later.
Clauses to check
- Redemption rights: when and on what conditions redemption can be demanded from the company
- Joint liability of interested parties: how far the CEO is personally on the hook
- Consent and prior-approval rights: which management decisions require investor consent
- Anti-dilution clause: how it adjusts when the next round is priced at a lower valuation
- Drag-along right: the conditions under which the founder must sell alongside in an exit
Rather than fighting over each clause, it works better in negotiation to first find which items conflict with the company’s next three-year plan.
What comes up in due diligence
Provisional payments, capitalized development costs, temporary receipts, labor matters, IP ownership, shareholder registry consistency. Cleaning these up before due diligence starts cuts the schedule considerably.
If you need a lecture or workshop on this topic
The format is matched to your institution’s goals and audience, from a 90-minute lecture to a 2-day intensive program. I usually reply within one day.