Introducing the Term Sheet Ninja
Neufund is a set of protocols for tokenising securities. Our first product is tokenised private equity. While building our platform the goal has always been to streamline and automate the process of fundraising and investment for both companies and investors. On the one hand, we use blockchain technology to enhance this process. On the other hand, we developed a set of open source tools such as tokenised ESOP or ICO Transparency Monitor to support both investors and companies interested in Security Token Offerings. The next tool is the Term Sheet Ninja.
An Equity Token Offering does not reinvent the wheel of fundraising. While being more efficient, transparent and cost-effective the company still has to prepare an investment offer, submit a prospectus and prepare a campaign page. Neufund streamlines the process of fundraising through the use of templates throughout the fundraising lifecycle from the initial term sheet to the legal agreements. Additionally, Neufund supports the process of writing a prospectus. While supporting companies at preparing their Equity Token Offerings and designing the platform we have realised that companies often need support when configuring the investment offer. But let’s start at the beginning…
What is a term sheet?
A term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up.
— Investopedia
Automated term sheet
The beauty of the Neufund protocol is that it issues tokens that represent legally enforceable rights. For the user this means one thing: enter your data into the ETO forms and your term sheet, the investment agreement, and the ETO smart contract will be automatically generated. The first one up: the term sheet. By using our Investment Terms Form the issuer will configure all terms and a legal document — like this the term sheet will be generated automatically. It is the first step to full automatisation of the process. Below you can see a preview of the Investment Terms Form.
Term Sheet Ninja
While configuring the investment terms only 4 figures* matter:
- Pre-money valuation,
- Amount of existing shares,
- Minimum amount of shares to issue and
- Maximum amount of shares to issue
If you plan to do a special offer for early supporters then you need to also include:
- Maximum of shares to issue in Pre-ETO and
- Discount
will matter.
*see Dictionary below for an explanation of terms
Based on those numbers any company is able to calculate all the specifics of the fundraising such as the minimum and maximum investment amount, the share price and the equity token price. The Term Sheet Ninja will take care of all of this! It calculates commercial terms of your term sheet for you and allows you to “play with numbers” to find the optimal offer for your company. It is a handy tool supporting you in the setup process of your fundraising. You can use our Term Sheet Ninja when preparing for an Equity Token Offering, but also when doing any other fundraising. With all numbers at one glance to show to your shareholders.
The Term Sheet Ninja also shows you the fees you would pay if doing an ETO with Neufund. This calculation includes the success fees paid to the platform.
You will also be able to print out your input and output on one piece of paper or pdf for further internal discussions.
Have a successful fundraising round and enjoy our little Term Sheet Ninja!
Dictionary
Equity Token Offering
A public offering of securities — in this case, equity tokens, in which investors invest funds in a venture receiving in return private equity of the company in form of blockchain-based tokens.
Pre-ETO/Presale
A private offering of securities — in this case, equity tokens, to a limited amount of investors usually based on more favourable terms (pre-sale discount, lower valuation, etc.).
Whitelist
Equity Token Offerings are governed by self-executing smart contracts. To give access to a specific amount of investors to the private offering of the token, the smart contract must include a list of all ETH addresses that may participate in it. This is the whitelist.
Pre-money valuation
Pre-money valuation refers to the value of a company not including external funding or the latest round of funding.
Post-money valuation
Post-money valuation includes outside financing or the latest capital injection.
Amount of shares to issue
Raising equity can be a valuable way to support the ongoing development of business, foster growth and strengthen a company’s equity position. Typically a company will raise equity by creating new shares through a capital increase. This means that they will increase the number of shares available for sale. As a starting point, a company has an upper limit of shares that the company could issue according to the articles of incorporation, these are the authorized shares. Issued shares are the total number of shares that the company has in fact issued. But raising too much too soon can can be inefficient as it lends itself to unsustainable growth and difficulties for companies to get future investments. Additionally, dilution can significantly worsen the financial position of existing shareholders by reducing the value of the shares that they own. For that reason, in any given financing round a company would normally issue between 5–20% of new shares.
New share price
The new share price in the public offering is calculated based on the new pre-money valuation and the existing amount of shares. It is a simple calculation: Pre-money valuation divided by the existing amount of shares.
Share nominal value
Nominal value, with respect to stocks or shares, is the stated value of an issued security, as opposed to its market value. In economics, nominal values refer to the unadjusted rate or current price, without taking inflation or other factors into account — as opposed to real values, where adjustments are made for general price level changes over time. In the case of standard investments, the nominal value of the newly issued shares is €1.
Equity token price
At Neufund we represent one new share with 10.000 tokens. To calculate the equity token price at the moment of the issuance you have to divide the “new share price” by 10.000. This will be later on the initial price of your token on the secondary market.
Authorized capital
The authorized share capital is the number of stock units (shares) that a company can issue as stated in its memorandum of association or its articles of incorporation. The authorized share capital is often not fully used by management in order to leave room for future issuance of additional stock in case the company needs to raise capital quickly. Another reason to keep shares in the company treasury is to retain a controlling interest in the business.
Maximum shares to issue in Pre-ETO
Your private offering can be limited to a specific amount of shares to be sold under special terms such as a presale discount. Some companies limit their Pre-ETO to prevent selling all shares at a lower valuation.
Presale discount
For the whitelisted investors in the private offering companies often offer favourable terms. These can be configured with a simple discount of x % on the pre-money valuation. This implies a lower new share price and equity token price.
Join our telegram chat if you have questions for me about the Term Sheet Ninja, tag @vanilizer, and follow me on Twitter for more updates on the ETO process.
Neufund provides an end-to-end solution for asset tokenization and issuance. Its open-source set of protocols for enhanced ownership allows anyone to give real-world assets a representation on the Ethereum Blockchain in form of legally-binding security tokens. The first application of our company’s tech and legal architecture are “Equity Tokens” which enable companies to conduct regulated offerings on Blockchain. Being at the legal and technical frontier Neufund advises governments on DLT regulation, supports open-source dev projects and educates financial communities around the world. Neufund’s mission is to “Enable ownership for all” through making ownership more transparent, accessible and efficient.
