The Term sheet specifies the rights and liabilities of investors of the Campaign Initiator company. It is usually shown in a table, listing 15-20 essential elements of 3 categories, which can serve as a source for further questions during the campaign on the online forum:
- Investors’ rights, i.e. the rights attached to shares (rights regarding corporate governance, right to obtain dividend and exit rights)
- terms regarding corporate governance (vesting, motivation of employees and decision-making methods)
- rights to information (rights to review the operative results and the decisions of the company).
|1||Type of shares:||Ordinary shares or preference shares|
|2||Minimum and Maximum Funding Target: (T; HUF)||The targeted amount of capital, which is disclosed in the campaign, expressed in Hungarian forints. Campaign Initiators may disclose both a Minimum and a Maximum Funding Target. Campaigns reaching the Minimum Funding Target are considered successful.|
|3||Minimum and Maximum equity offered (E; %)||The stake in the company, which the Campaign Initiator offers in exchange for the investment. In accordance with the Funding Target, the Campaign Initiator may also offer a Minimum and a Maximum level of equity, which the investors receive in the form of shares, proportionally to their investment. In case of equity-based crowdfunding, shareholders usually acquire minority stake, the offered equity is usually below 35%.|
|4||Pre-money valuation: (PM; HUF)||According to the simplified method of startup valuation, the pre-money valuation of the company is calculated based on the investment and the offered equity, as follows: (100%/E*T)-T. It does not mean that the company can be acquired at that price rightaway, but rather indicates the stake in the company, which the Campaign Initiator offers in exchange for the investment, considering past developments and earnings.|
|5||Minimum investible amount (MI;HUF)||The lowest amount an investor can invest in the Campaign, according to the disclosed conditions. (Evidently, it must be a multiple of the price of one share.)|
|6||The issue price of one share (S;HUF):||The share price always refers to the issue price of one share. The Minimum investible amount shall be a multiple of that price, as indicated in the Campaign terms.|
In case the Funding Target of a Campaign is above EUR 100,000 and the investment is implemented by subscribing to the shares to be issued (in which case each investor wires his entire investment to the custodian account rightaway), then the issue price of one share can be accessed only by the first 149 non-professional investors. In case the Campaign Initiator collects declarations of commitment from investors during the campaign and thus investors purchase the shares after the last day of the campaign, then the issue price of one share can be accessed by any identified investors, who declare their commitment, regardless of their number.
|7||Lead investor and his undertakings:||A natural person or legal entity, who negotiates the terms of investment with the Campaign Initiator, and invests a fraction of the targeted capital in the Campaign. The Campaign Initiator receives the investment of the Lead investor only in case of a successful campaign. The Lead investor may request a commission from the future earnings of the company, and also may acquire a stake in the company at a lower price than the crowd, in exchange for completing the due diligence of the company. The other investors authorize the Lead investor to act on behalf of them in the course of corporate governance.|
|8||Perks||The Campaign Initiator may offer several perks in order to raise the attention of prospective investors and make the investment more attractive. Perks may be limited either in terms of date of investment, the investment amount or the number of investors. For instance, the Campaign Initiator may offer benefits for the first hundred investors or to those who invest a ten times larger amount than the Minimum investible amount.|
|Shareholder rights, conditions of diversion and transfer|
Tokeportal.com approves such terms of investment only, where the rights of the Lead investor are not disproportionate to the rights of other investors. The Lead investor is not allowed to apply the diversion of voting rights disproportionately to his stake in the company in order to make a change in the Articles of association.
|9||Rights attached to shares:||Voting rights: A qualified majority is required to (i) change shareholder rights; (ii) change the number of shares; (iii) repurchase shares; (iv) pay dividend; (v) assign or resign a chief executive officer or assign a manager, which is in the competence of the CEO; (vi) file for bankruptcy or liquidation.|
In case of early-phase companies, the dividend policy in the first few years aims at the reinvestment of the earnings rather than paying dividend, but it is up to the resolution of the company.
|10||Veto rights:||The Lead investor may lay down veto rights, which are disclosed in the terms of investment.|
|11||Liquidation preference:||The Lead investor may lay down a modest liquidation preference (in terms of annual earnings), which determines the minimum expected return on his investment in case of an exit.|
|12||Drag-along and Tag-along:||The application of a drag-along right may result in a profitable exit for the shareholders, if the Campaign Initiator company is acquired at a price above the pre-defined minimum exit price. A tag-along right can be applied by the Lead investor, which facilitates the sales of shares together with any shareholder at a predefined price when it does not result in an exit.|
Tokeportal.com recommends at most the drag-along right.
|13||Right of first refusal:||In case of applying the right of first refusal, a shareholder can sell his shares to a non-shareholder only upon the approval of the other shareholders.|
Tokeportal.com recommends the issuing of shares without the right of first refusal.
|14||Pre-emptive subscription rights:||Investors with a stake in the company above 5% may be entitled to subscribe to additional shares on a pro rata basis.|
|15||Liabilities of founders (vesting):||The realization of the business plan depends significantly on the work of founders. In case of vesting, each founder has a vesting period of at least 3 years, which means that if they leave the company, they will lose their shares on a time proportion basis.|
|16||Executive Board:||The investors are entitled to delegate at most 2 members to the executive board of the Campaign Initiator company: one of them is the Lead investor and if the Lead investor has not laid down the right to represent other investors, then the investors can delegate another member by election at the General Assembly.|
|17||Guarantees:||The CEO and the other Chief Executives of the Campaign Owner company guarantee the accuracy of historical and actual information disclosed in the Campaign, as well as the validity of future plans, with special regard to debt, liabilities and the intellectual property rights of the company.|
|18||Final condition of capital increase||The company receives the capital only in case it is a private limited company and if it meets the conditions of investment. Tokeportal.com claims the right to terminate the Campaign and refund the investments to investors in case during or after the campaign such information arises, which is contrary to those disclosed by the Campaign Initiator.|
|19||Disclosures:||Beyond its annual reports, the company is liable to disclose a KPI report on the website operated by Tokeportal.com|