Letter of Intent - Investment

LETTER OF INTENT - INVESTMENT

Date: [DATE]

CONFIDENTIAL

[COMPANY NAME]
[COMPANY ADDRESS]
[CITY, STATE ZIP]

Attention: [FOUNDER/CEO NAME]

Re: Non-Binding Letter of Intent for Proposed Investment in [COMPANY NAME]

Dear [SALUTATION]:

This Letter of Intent (this "LOI" or "Term Sheet") sets forth the principal terms and conditions upon which [INVESTOR NAME], a [STATE] [ENTITY TYPE] (the "Investor" or "Lead Investor"), proposes to invest in [COMPANY NAME], a [STATE] [ENTITY TYPE] (the "Company"). Except for the Binding Provisions set forth in Section 11, this LOI does not create any legally binding obligations between the parties.

TABLE OF CONTENTS

1. Investment Overview
2. Securities to be Issued
3. Valuation and Capitalization
4. Investor Rights
5. Governance and Board Composition
6. Protective Provisions
7. Employee Matters
8. Conditions to Closing
9. Use of Proceeds
10. Non-Binding Nature of Business Terms
11. Binding Provisions
12. General Provisions
13. Acknowledgment and Acceptance

1. INVESTMENT OVERVIEW

1.1 Investment Amount

The total investment amount for this financing round (the "Financing") shall be:

Lead Investor: $[AMOUNT]
Other Investors: $[AMOUNT] (subject to allocation by Lead Investor)
Total Round Size: $[AMOUNT]

1.2 Financing Round

☐ Seed Round
☐ Series Seed
☐ Series A
☐ Series B
☐ Series [X]
☐ Bridge Financing
☐ Growth Equity

1.3 Closing

The Closing shall occur on or before [DATE], or such other date as mutually agreed (the "Closing Date"), subject to satisfaction of conditions precedent and execution of definitive agreements.

2. SECURITIES TO BE ISSUED

2.1 Type of Security

☐ Preferred Stock: The Company shall issue shares of Series [X] Preferred Stock (the "Preferred Stock") to the Investors.

☐ Convertible Note: The Company shall issue convertible promissory notes (the "Notes") to the Investors.

☐ SAFE: The Company shall issue Simple Agreements for Future Equity (the "SAFEs") to the Investors.

☐ Common Stock: The Company shall issue shares of Common Stock to the Investors.

2.2 Preferred Stock Terms (if applicable)

2.2.1 Dividend Rights

☐ Non-Cumulative: Dividends on Preferred Stock shall be non-cumulative and payable when and if declared by the Board.

☐ Cumulative: Dividends shall accrue at [PERCENTAGE]% per annum, whether or not declared, and shall be payable upon a Liquidation Event or redemption.

☐ Participating: Preferred Stock shall participate pari passu with Common Stock in any dividends declared.

2.2.2 Liquidation Preference

In the event of a Liquidation Event (including merger, acquisition, or sale of assets), holders of Preferred Stock shall receive:

☐ 1x Non-Participating: The greater of (a) [1x] times the Original Issue Price plus any declared but unpaid dividends, or (b) the amount receivable on an as-converted basis.

☐ 1x Participating: [1x] times the Original Issue Price plus any declared but unpaid dividends, then participate pro rata with Common Stock.

☐ Participating with Cap: [1x] times the Original Issue Price plus participation in remaining proceeds, capped at [X]x total return.

☐ [X]x Non-Participating: The greater of (a) [X]x times the Original Issue Price, or (b) the amount receivable on an as-converted basis.

2.2.3 Conversion Rights

Preferred Stock shall be convertible into Common Stock at any time at the option of the holder, initially at a 1:1 conversion ratio, subject to adjustment for stock splits, dividends, and anti-dilution provisions.

2.2.4 Anti-Dilution Protection

☐ Broad-Based Weighted Average: The conversion price shall be adjusted on a broad-based weighted average basis if the Company issues additional equity securities at a price below the conversion price.

☐ Narrow-Based Weighted Average: The conversion price shall be adjusted on a narrow-based weighted average basis.

☐ Full Ratchet: The conversion price shall be reduced to the price at which new securities are issued.

☐ No Anti-Dilution: No anti-dilution protection.

Excluded from anti-dilution: (i) employee option pool; (ii) securities issued upon conversion; (iii) stock dividends/splits; (iv) securities issued in connection with strategic transactions approved by the Board.

2.2.5 Automatic Conversion

Preferred Stock shall automatically convert to Common Stock upon:

• A Qualified IPO (defined as a firm commitment underwritten public offering resulting in gross proceeds of at least $[AMOUNT] and a pre-money valuation of at least $[AMOUNT]); or
• The consent of holders of [MAJORITY / SUPERMAJORITY] of the Preferred Stock.

2.3 Convertible Note Terms (if applicable)

☐ Principal Amount: $[AMOUNT]
☐ Interest Rate: [PERCENTAGE]% per annum [simple/compounding]
☐ Maturity Date: [NUMBER] months from issuance
☐ Conversion Discount: [PERCENTAGE]% discount to the price per share in the Next Equity Financing
☐ Valuation Cap: $[AMOUNT] pre-money valuation
☐ Conversion Trigger: Qualified Financing of at least $[AMOUNT]
☐ Conversion at Maturity: [Automatic/Optional] conversion at [VALUATION CAP / LAST ROUND PRICE / NEGOTIATED PRICE]

2.4 SAFE Terms (if applicable)

☐ Purchase Amount: $[AMOUNT]
☐ Valuation Cap: $[AMOUNT]
☐ Discount Rate: [PERCENTAGE]%
☐ Pro Rata Rights: [Yes/No]
☐ MFN Provision: [Yes/No]

3. VALUATION AND CAPITALIZATION

3.1 Pre-Money Valuation

The pre-money valuation of the Company shall be $[AMOUNT].

3.2 Post-Money Valuation

The post-money valuation (assuming full investment) shall be $[AMOUNT].

3.3 Price Per Share

The price per share of Preferred Stock shall be $[AMOUNT] (the "Original Issue Price").

3.4 Ownership

Upon completion of the Financing, the ownership of the Company shall be approximately:

3.5 Option Pool

The Company shall establish or increase its employee stock option pool to [PERCENTAGE]% of the fully diluted capitalization (the "Option Pool"), with such increase occurring prior to the Financing (and included in the pre-money valuation).

4. INVESTOR RIGHTS

4.1 Information Rights

The Company shall provide to Major Investors (defined as investors holding at least [NUMBER] shares or $[AMOUNT] invested):

• Annual audited financial statements within [90] days of fiscal year end
• Quarterly unaudited financial statements within [45] days of quarter end
• Annual budget and business plan within [30] days of fiscal year start
• Monthly management reports (if requested)
• Capitalization table upon request

4.2 Inspection Rights

Major Investors shall have the right to inspect the Company's books and records and discuss the Company's affairs with its officers during normal business hours upon reasonable notice.

4.3 Registration Rights

☐ Demand Registration: Holders of at least [PERCENTAGE]% of Registrable Securities may demand [NUMBER] long-form registrations and [NUMBER] short-form registrations (S-3).

☐ Piggyback Registration: Investors shall have the right to participate in any Company registration, subject to customary cutbacks.

☐ Expenses: The Company shall bear registration expenses (excluding underwriting discounts and selling commissions).

☐ Lock-Up: Investors shall agree to a market standoff of up to [180] days in connection with the Company's IPO.

4.4 Pro Rata Rights

Major Investors shall have the right to participate in future equity financings on a pro rata basis to maintain their percentage ownership.

4.5 Right of First Refusal

☐ Company ROFR: The Company shall have a right of first refusal on transfers of Common Stock by founders and employees.

☐ Investor ROFR: If the Company does not exercise its ROFR, Major Investors shall have a secondary right of first refusal.

4.6 Co-Sale Rights

Major Investors shall have co-sale (tag-along) rights if founders propose to sell their shares to a third party.

4.7 Drag-Along Rights

If holders of [MAJORITY] of Preferred Stock and [MAJORITY] of Common Stock approve a sale of the Company, all shareholders shall be required to participate in the transaction on the same terms.

5. GOVERNANCE AND BOARD COMPOSITION

5.1 Board of Directors

Upon Closing, the Board of Directors shall consist of [NUMBER] members:

5.2 Board Meetings

The Board shall meet at least [quarterly/monthly]. Investor directors shall be entitled to reimbursement of reasonable travel expenses.

5.3 Board Committees

The Board may establish committees including:

• Compensation Committee
• Audit Committee
• [Other Committees]

5.4 D&O Insurance

The Company shall obtain and maintain directors and officers liability insurance with coverage of at least $[AMOUNT].

6. PROTECTIVE PROVISIONS

6.1 Investor Consent Required

So long as [NUMBER] shares of Preferred Stock remain outstanding, the Company shall not, without the approval of holders of [MAJORITY/SUPERMAJORITY] of Preferred Stock:

☐ Amend the Certificate of Incorporation or Bylaws in a manner that adversely affects the Preferred Stock
☐ Create any senior or pari passu securities
☐ Increase or decrease the authorized number of shares
☐ Declare or pay any dividends on Common Stock
☐ Repurchase or redeem any shares (except repurchases at cost from terminated employees)
☐ Effect any merger, acquisition, sale of substantially all assets, or liquidation
☐ Increase the size of the Board
☐ Increase the Option Pool beyond [PERCENTAGE]%
☐ Change the Company's principal business
☐ Incur debt in excess of $[AMOUNT]
☐ Enter into related party transactions outside the ordinary course
☐ [OTHER PROTECTIVE PROVISIONS]

6.2 Founder Vesting

☐ Existing Founders: Founders' shares shall be subject to [NUMBER]-year vesting with [NUMBER]-month cliff, with [PERCENTAGE]% of shares vested as of Closing.

☐ Single Trigger Acceleration: [PERCENTAGE]% of unvested shares shall vest upon a change of control.

☐ Double Trigger Acceleration: [PERCENTAGE]% of unvested shares shall vest upon termination without cause or resignation for good reason within [12] months following a change of control.

7. EMPLOYEE MATTERS

7.1 Key Employee Agreements

Prior to Closing, all employees and consultants shall have executed:

• Confidential Information and Invention Assignment Agreement
• Employment/Consulting Agreement (as applicable)
• Stock Option Agreement (if applicable)

7.2 Key Employee Retention

[NAME(S)] shall [remain employed by / enter into employment agreements with] the Company through Closing and for [NUMBER] years thereafter.

7.3 83(b) Elections

Founders and employees who have received restricted stock shall have timely filed 83(b) elections where applicable.

8. CONDITIONS TO CLOSING

8.1 Conditions to Investor's Obligations

Investor's obligation to close shall be subject to:

☐ Completion of due diligence satisfactory to Investor
☐ Negotiation and execution of definitive agreements (Stock Purchase Agreement, Investor Rights Agreement, Voting Agreement, Right of First Refusal and Co-Sale Agreement, Certificate of Incorporation)
☐ Accuracy of Company's representations and warranties
☐ Receipt of all required consents and approvals
☐ Satisfactory legal opinion from Company's counsel
☐ Satisfactory management rights letter (if Investor is a fund)
☐ No material adverse change in the Company's business
☐ [OTHER CONDITIONS]

8.2 Conditions to Company's Obligations

Company's obligation to close shall be subject to:

☐ Negotiation and execution of definitive agreements
☐ Receipt of investment funds
☐ Board and stockholder approvals
☐ [OTHER CONDITIONS]

9. USE OF PROCEEDS

9.1 Intended Use

The Company intends to use the proceeds from the Financing for:

• [USE 1 - e.g., Product development]
• [USE 2 - e.g., Sales and marketing]
• [USE 3 - e.g., Hiring key personnel]
• [USE 4 - e.g., Working capital]
• [USE 5 - e.g., General corporate purposes]

9.2 Restrictions

Proceeds shall not be used for:

• Distributions to existing shareholders
• Repayment of shareholder loans (except as approved by Investor)
• [OTHER RESTRICTIONS]

10. NON-BINDING NATURE OF BUSINESS TERMS

IMPORTANT NOTICE: Except for the Binding Provisions expressly set forth in Section 11 below, this LOI is intended solely as a basis for further discussions and is not intended to be, and does not constitute, a legally binding obligation on either party. The terms set forth in Sections 1 through 9 are non-binding and are subject to:

(a) The satisfactory completion of due diligence by Investor;
(b) The negotiation, execution, and delivery of mutually acceptable definitive agreements;
(c) Approval by Investor's investment committee (if applicable);
(d) Approval by the Company's Board of Directors and stockholders;
(e) The satisfaction of all conditions to Closing; and
(f) Such other conditions as the parties may mutually agree.

No binding agreement shall exist between the parties with respect to the investment unless and until the parties have negotiated, executed, and delivered definitive written agreements, and then only in accordance with the terms thereof. Either party may terminate discussions at any time prior to the execution of definitive agreements for any reason or no reason, without liability to the other party (except with respect to the Binding Provisions).

11. BINDING PROVISIONS

THE FOLLOWING PROVISIONS ARE LEGALLY BINDING AND ENFORCEABLE:

11.1 Confidentiality (BINDING)

(a) Definition: "Confidential Information" means all non-public information disclosed by either party (the "Disclosing Party") to the other party (the "Receiving Party") in connection with the proposed investment, including business plans, financial information, customer data, technical information, and the existence and terms of this LOI.

(b) Obligations: The Receiving Party shall: (i) maintain the confidentiality of all Confidential Information using at least the same degree of care it uses to protect its own confidential information; (ii) not disclose Confidential Information to any third party except to its partners, directors, officers, employees, attorneys, accountants, and advisors who need to know such information and who are bound by confidentiality obligations; and (iii) use Confidential Information solely for evaluating the proposed investment.

(c) Exceptions: Confidential Information does not include information that: (i) is or becomes publicly available through no fault of the Receiving Party; (ii) was already known to the Receiving Party prior to disclosure; (iii) is received from a third party without breach of any confidentiality obligation; or (iv) is independently developed without use of Confidential Information.

(d) Duration: The confidentiality obligations shall survive for [TWO (2)] years following termination of this LOI.

11.2 Exclusivity/No-Shop (BINDING)

For a period of [FORTY-FIVE (45)] days from the date of this LOI (the "Exclusivity Period"), the Company agrees that neither the Company nor any of its officers, directors, employees, stockholders, agents, or representatives shall, directly or indirectly:

(a) Solicit, initiate, encourage, or facilitate any inquiry, proposal, or offer from any third party relating to any equity financing, debt financing (other than ordinary course working capital lines), acquisition, merger, or similar transaction;

(b) Participate in any discussions or negotiations regarding any such transaction with any third party;

(c) Provide any non-public information to any third party for purposes of evaluating any such transaction; or

(d) Enter into any agreement, arrangement, or understanding with any third party regarding any such transaction.

The Company shall promptly notify Investor of any inquiry or proposal received from any third party.

11.3 Expenses (BINDING)

(a) Company's Expenses: The Company shall bear its own legal, accounting, and other expenses incurred in connection with the Financing.

(b) Investor's Expenses: Upon Closing, the Company shall reimburse Investor for its reasonable legal fees and expenses incurred in connection with the Financing, up to a maximum of $[AMOUNT]. If the Financing does not close due to the Company's termination of negotiations or material breach of this LOI, the Company shall reimburse Investor's expenses up to $[AMOUNT].

11.4 Public Announcements (BINDING)

Neither party shall issue any press release or public announcement regarding the proposed investment without the prior written consent of the other party, except as required by applicable law.

11.5 Due Diligence Access (BINDING)

During the Exclusivity Period, the Company shall provide Investor and its representatives with full access to the Company's management, employees, facilities, books, records, and other information as reasonably requested for due diligence purposes.

11.6 Good Faith Negotiation (BINDING)

The parties shall negotiate in good faith toward the execution of definitive agreements for the investment.

11.7 Governing Law and Dispute Resolution (BINDING)

(a) Governing Law: This LOI and any dispute arising hereunder shall be governed by and construed in accordance with the laws of the State of [GOVERNING STATE / DELAWARE], without regard to its conflict of laws principles.

(b) Jurisdiction: The parties irrevocably submit to the exclusive jurisdiction of the state and federal courts located in [COUNTY], [STATE] for any action arising out of or relating to the Binding Provisions.

(c) Attorneys' Fees: The prevailing party in any action to enforce the Binding Provisions shall be entitled to recover its reasonable attorneys' fees and costs.

12. GENERAL PROVISIONS

12.1 Termination

This LOI may be terminated: (a) by mutual written agreement; (b) by either party upon written notice if definitive agreements have not been executed by [DATE]; (c) by Investor if due diligence is unsatisfactory; or (d) by Investor if its investment committee does not approve the investment. The Binding Provisions shall survive any termination.

12.2 Definitive Agreements

The investment shall be consummated pursuant to definitive agreements containing customary representations, warranties, covenants, and conditions, including the forms promulgated by the National Venture Capital Association (NVCA) as modified for this transaction.

12.3 Finders/Brokers

Each party represents that no finder or broker is entitled to any fee in connection with this transaction, except [IDENTIFY ANY BROKERS/FINDERS].

12.4 Amendment

This LOI may be amended only by a written instrument signed by both parties.

12.5 Assignment

Neither party may assign this LOI without the prior written consent of the other party, except that Investor may assign to an affiliated fund.

12.6 Counterparts

This LOI may be executed in counterparts. Electronic signatures shall be deemed original signatures.

13. ACKNOWLEDGMENT AND ACCEPTANCE

If the foregoing terms are acceptable, please sign and return a copy of this LOI by [DEADLINE DATE]. This LOI shall be effective upon execution by both parties.

We look forward to working with you to complete this investment.

Sincerely,

[INVESTOR NAME]

By: ___________________________
Name: [PRINTED NAME]
Title: [TITLE]
Date: _________________________

ACKNOWLEDGED AND AGREED:

[COMPANY NAME]

By: ___________________________
Name: [PRINTED NAME]
Title: [TITLE]
Date: _________________________