The language of investment can seem complex and confusing. What are the typical terms needed in an investment agreement, why are they important, and how do they help to ensure the success of the investment company?
A series of 7 articles focusing on the primary components of a term sheet, how deal terms impact financial outcomes, and which terms raise the biggest concerns for investors and entrepreneurs. By Seraf.
Since equity investors have no legal right to be repaid the way a lender does, their only path to repayment is through the success of the company. It is natural for them:
*to want to know what’s going on in the company,
*to have a say in critical decisions, and
*to protect against founder behavior that could be damaging to the company.
There are four principal ways investors implement this: board seats, governance provisions, information rights and founder restrictions.