Term Sheet of Venture Capitals

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Strictly private and confidential

Not to be disclosed or distributed to third parties

Draft ●

Indicative Term Sheet

[For use on Series A round]

We are pleased to present our proposal for an investment in ● (the "Company").

Investment

1 You have told us that the proposed business plan calls for an equity injection of £● . Of this amount, funds managed by us (the "Funds") will provide £● alongside investment by other venture capital funds or financial institutions (together the "Investors"). We will act as lead equity investor.

2 The investment will be at a fully diluted pre-money valuation of £● , including employee share options (both granted or committed) equal to ●% of the fully diluted equity. The investment will represent a ●% shareholding for the Investors on a fully diluted basis, following an expansion of the share option pool as detailed in paragraph 2.4. The current capitalisation of the Company is set out in Part I of Appendix 1 and the capitalisation of the Company after this proposed funding is set out in Part 2 of Appendix 1.

3 The investment will be made in the form of convertible participating [redeemable] preferred shares ("Preferred Shares") at a price of £● per Preferred Share (the "Original Issue Price") the terms of which are set out in Appendix 2.

4 [The investment will be made in full at completion.]/

[The investment will be staged with ●% being invested at completion (the "First Tranche") and ●% being invested subsequently (the "Second Tranche"). [The Investors will have the right, but not the obligation, to subscribe for the Second Tranche at the same price per share as the First Tranche at any time.] [Provided that the performance milestones referred to in paragraph 2.6 have been met, the board of directors of the Company (the "Board") will have the right to call the Second Tranche within ● months of the performance milestones being satisfied.]

5 The proceeds from the investment must be used for the Company's working capital requirements [in particular ●].

Conditions of investment

1 The investment is conditional on negotiation of definitive legal documents, satisfactory completion of due diligence and approval by our Investment Committee.

2 Satisfactory completion of due diligence will include:

1 Conclusion of our commercial due diligence [including ● ]

2 References from customers and partners

3 Market and technology review by an independent third party

4 Management references

5 Review of current trading and forecasts for the next ● – ● months

6 Review of existing and/or proposed management service contracts

7 Review of the Company's financial history and current financial situation by our advisors including, a review of the last set of audited accounts and the latest set of monthly management accounts prior to completion of our investment

8 Full legal review of the Company by our lawyers, focusing particularly on ownership of all necessary intellectual property and benefit of all key commercial contracts

9 [VCT tax clearance from the Inland Revenue]

3 The Company must secure institutional co-investment of at least £● on identical terms from other venture capital funds or similar organisations acceptable to us. We will not underwrite the total funding sought nor guarantee the securing of co-investors.

4 The expansion of the share option pool [prior to the investment] to represent ●% of the equity [pre-funding]/[post-funding] on a fully diluted basis. These extra share options will be reserved for new employees and will have an exercise price equal to the Original Issue Price (see paragraph 1.3) [or may be exercised at a discount to that price subject to consent from the relevant tax authority and the Investor Director (see paragraph 4.3)]. Following grant, these options will vest quarterly over a ● year period, [subject to a minimum employment of ● year].

5 The...
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