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You’ve just received a term sheet from Calm Company Fund. Here are some tips for understanding the documents and process. Please read carefully.
Remember that investment from Calm Company Fund comes with more than just a check. It also includes:
- Access to a world-class mentor network
- A curated community of like-minded portfolio founders learning from each other
- Full access to Founder Summit Remote community + events
- Our full catalog of perks & partnerships: $10,000s of credits and discounts
In order to better understand the investment terms, we recommend reviewing the following posts:
- Shared Earnings Agreement
- Shared Earnings Agreement: Digging into the numbers
Even though we’re investors, 9 times out 10 we find ourselves making the case for the company to raise less capital. Our initial investment amount is up for discussion of course but in general our bias is that companies probably need less capital than they initially think. If “founder break-even” is your next milestone, you may find this worksheet helpful in calculating the pathway to founder break-even.
If you have other investors that you would like to join this round, they may find this article explaining the SEAL helpful.
If you have other investors that would like co-invest on the same (Shared Earnings Agreement) terms, there are two options. For just a few investors, you can simply sign separate SEALs with each. It’s important to keep track of them and make sure you know how much Shared Earnings or % of the company at exit you’re selling to investors in aggregate. If you have a lot of small angels (say 10 or more) we can set up a syndicate for you that will allow them to pool their investments together and be just one investment check on your cap table.
Lastly, the SEAL does play nicely with investors who prefer to invest with a SAFE. We recommend making it clear to those investors that the SAFE does not entitle them to “Shared Earnings” (for simplicity you can call it a profit share) while the SEAL does. Some investors still prefer to use the structure they know and there’s no problem with that.
The process from here is:
1. We discuss and both parties agree the term sheet is roughly agreeable
2. Due Diligence. We’ll invite you to a Basecamp project with a short todo list. This is primarily focused on verifying claims about the business (metrics, financials) as well as document collection confirming the founders own the business, are entitled to do the deal, etc. We try to keep this to under 2 weeks and it frequently is shorter.
3. If all looks good, Calm Company Fund will prepare a draft of the definitive documents which are the legally binding investment agreement. This is the time to look it over, discuss with lawyer, ask us any questions.
4. Once we are all on the same page we’ll loop in our back office to get the documents signed and investment wired.
We don’t have a “take it or leave it” standard offer at Calm Company Fund so technically everything you see in the terms is discuss-able and potentially negotiable.
But, we also take great to care to try to make a fair offer on the first pass. We respect founders’ time too much to mess around with “high ball, low ball, meet in the middle” nonsense.
If everything looks great except you really feel strongly about changing one term or another, please let us know and let’s discuss it, but also don’t expect any number to move by 300% or something crazy
The term sheet is a non-binding document that is just designed to make sure investor and founder are roughly on the same page with investment terms. Although you’re of course welcome to have legal advice at any phase of the process, if you are trying to minimize legal expenses, you can wait until we get to the “definitive docs” phase which is the legally binding investment contract to have a lawyer review.
When we get to the “definitive docs” phase—this is the legally binding, more detailed, version of the term sheet—we do encourage founders to have a lawyer review it, if only to make sure they understand the terms.
But, in order to keep closing efficient (in time and money) we set a very high bar for making changes to our standard documents. Please please, do not ask or allow your lawyer “mark up” the documents with a hundred tiny little proposed changes. If you are not working with a lawyer that you have a long-standing relationship with, you need to make this explicit or they will default to proposing changes from comma-placement or to stylistic re-phrasing sentences. You can say: “Please review this document. I don’t need a full mark up. Let me know if you have any serious material concerns about the agreement and let’s discuss it to make sure I fully understand the implications for my business”.
