The One Page Term Sheet: Simplifying Angel Investment Agreements
A one page term sheet streamlines angel investment negotiations by focusing on the essential terms that matter. Instead of complex venture capital term sheets running 10+ pages, angel investors and entrepreneurs can use a simpler approach that covers the key deal points while reducing legal costs and negotiation time.
This guide explains the core elements of a simple angel term sheet and provides a template for structuring early-stage investment agreements.
Why Use a One Page Term Sheet?
Traditional VC term sheets include numerous protective provisions, governance rights, and complex terms that may be unnecessary for smaller angel rounds. A simplified term sheet offers several advantages:
- Faster negotiations: Less complexity means quicker agreement
- Lower legal costs: Simpler documents cost less to draft and review
- Better relationships: Fair, straightforward terms build trust
- Founder-friendly: Avoids excessive investor protections
- Flexibility: Easier to modify for specific situations
Essential Terms for Angel Investment
A one page term sheet should cover these core elements:
1. Investment Amount and Valuation
- Investment amount: Total capital being raised
- Pre-money valuation: Company value before investment
- Ownership percentage: Investor stake post-investment
- Share price: Price per share calculation
2. Type of Security
- Common shares: Simplest structure, same rights as founders
- Preferred shares: With liquidation preference and other rights
- Convertible note: Debt that converts to equity
- SAFE: Simple Agreement for Future Equity
3. Key Rights and Protections
- Liquidation preference: Return of capital before common shareholders
- Pro-rata rights: Right to invest in future rounds
- Information rights: Access to financial information
- Board representation: Observer seat or board seat
Sample One Page Term Sheet Template
Here’s a template for a simple angel investment term sheet:
TERM SHEET – [Company Name]
Date: [Date]
Company: [Company Name], a [State] corporation
Investors: [Investor Names]
Amount: $[Amount] in aggregate
Pre-Money Valuation: $[Valuation]
Post-Money Valuation: $[Pre-money + Investment Amount]
Price Per Share: $[Price]
Security: [Common/Preferred] Shares
Liquidation Preference: 1x non-participating
Pro-Rata Rights: Investors have the right to maintain ownership percentage in future equity financings
Information Rights: Annual financial statements and quarterly updates
Board: [Board composition – e.g., “2 founders, 1 investor observer”]
Vesting: Founder shares subject to 4-year vesting with 1-year cliff
Expenses: Company pays investor legal fees up to $[Amount]
Exclusivity: 30 days from signing to complete definitive agreements
Typical Angel Investment Terms
While terms vary by situation, here are typical ranges for angel deals:
Valuation
Seed-stage valuations typically range from $2-8 million pre-money, depending on team, traction, and market. Angel rounds often raise $250K-$1M.
Liquidation Preference
1x non-participating is standard for angel rounds. This means angels get their money back before founders, but don’t double-dip by also sharing in remaining proceeds.
Pro-Rata Rights
Most angels negotiate the right to invest in future rounds to maintain their ownership percentage. This is a valuable right as the company grows.
Alternatives to Term Sheets
SAFE (Simple Agreement for Future Equity)
Y Combinator’s SAFE eliminates valuation negotiation by deferring to a future priced round. SAFEs specify a valuation cap and/or discount for conversion.
Convertible Notes
Convertible notes are debt instruments that convert to equity at a future financing. They include interest rate, maturity date, and conversion terms.
Frequently Asked Questions
What is an angel investor term sheet?
An angel investor term sheet is a non-binding document outlining the key terms of a proposed investment. It covers valuation, investment amount, type of security, investor rights, and other material terms. The term sheet guides drafting of final legal documents.
What should be included in a simple term sheet?
A simple term sheet should include: investment amount, pre-money valuation, type of security (common/preferred/SAFE), liquidation preference, pro-rata rights, information rights, and board representation. More complex terms can be added as needed.
Is a term sheet legally binding?
Term sheets are typically non-binding, except for specific provisions like confidentiality and exclusivity. The term sheet expresses intent and guides negotiation, but final binding commitments come from definitive legal documents like stock purchase agreements.
What is a one page term sheet?
A one page term sheet is a simplified investment agreement that covers essential terms without excessive complexity. It’s designed for angel investments where traditional VC term sheets would be overkill. The goal is faster negotiations, lower legal costs, and founder-friendly terms.
What are typical angel investor terms?
Typical angel terms include: $2-8M pre-money valuation for seed stage, 1x non-participating liquidation preference, pro-rata rights for future rounds, quarterly financial updates, and board observer seats. Terms vary based on company stage, traction, and competitive dynamics.
What is liquidation preference in a term sheet?
Liquidation preference determines how proceeds are distributed when a company is sold or liquidated. A 1x preference means investors get their money back before common shareholders. “Non-participating” means they don’t also share in remaining proceeds – they choose either preference or pro-rata share.
What’s the difference between a term sheet and a SAFE?
A term sheet outlines terms for an immediate equity investment at an agreed valuation. A SAFE (Simple Agreement for Future Equity) defers valuation to a future financing round, specifying a cap and/or discount. SAFEs are simpler but don’t give immediate ownership.
How do I negotiate an angel term sheet?
Focus negotiations on economics (valuation, ownership) rather than control provisions. Understand which terms matter most to each party. Be willing to compromise on minor issues. Use comparable deals as benchmarks. Consider using standard templates to reduce friction.
What are pro-rata rights?
Pro-rata rights allow investors to invest additional capital in future financing rounds to maintain their ownership percentage. If an investor owns 10% and the company raises more money, pro-rata rights let them invest enough to stay at 10%. This is valuable as companies grow.
Do I need a lawyer for an angel term sheet?
While founders can draft simple term sheets, legal review is recommended before signing. An experienced startup lawyer can identify problematic terms, suggest improvements, and help negotiate. Budget $2,000-$10,000 for angel round legal fees depending on complexity.
What is an angel investor contract template?
An angel investor contract template is a standardized document for structuring angel investments. Templates reduce legal costs and negotiation time by starting from established terms. Popular templates include Y Combinator’s SAFE documents and various law firm templates.
How long does angel term sheet negotiation take?
Simple angel term sheets can be negotiated in days to weeks. Complex negotiations with multiple investors may take longer. Using standard templates and focusing on essential terms accelerates the process. Expect 2-4 weeks from term sheet to closed funding for straightforward deals.