Fundraising · Early Stage Funding

Term Sheet vs PPM for Seed Round?

Bill Cummings Founder/CTO Modulux Lighting Inc.

October 5th, 2016

Our company is about to raise a seed round. We have have a PPM that was prepared by a law firm as well as a Term Sheet that we have created.  What would be the best way to approach Angel investors?

Martin Omansky Independent Venture Capital & Private Equity Professional

October 5th, 2016

We are angel investors. Our best advice is to burn the term sheet, generate a few-page summary of the enterprise, (don't forget summary financial projections, circulate it to get expressions of interest, and use the PPM only as a last resort. Sorry you had to pay a law firm to draft it - it is expensive and often unnecessary in seed rounds. Sent from my iPhone

Jim Jordan Investor / Board Member at Sparx Hockey

October 5th, 2016

Start with a good company presentation that clearly articulates the value proposition, the problem you solve, the size of the market, the competitive landscape and financial projections including sources and uses of funds and important milestones related to your funding and summary proposed financing terms.

The PPM (if required) and detailed term sheet can be used after you have generated investor interest. 

Robert Stratton General Partner at MACH37

October 5th, 2016

I'm with Mr. Omansky on this one. Drafting a formal PPM is not unlike writing a traditional business plan in the form of a 20+ page document. There is real value to the team in going through the exercise of creating it, but they shouldn't expect anyone outside your company to use it. 

The reality is that people don't usually work that way. An experienced investor can glean the business plan from a 10 slide presentation by an articulate founder,  and some robust questions and answers. 

I would do what I could to ensure your prospective angel investors the flexibility to craft a deal with you that addresses both their needs and yours. You need to know how much you need to raise, but pricing will be the outcome of a conversation, not something you set a priori.