VC Term Sheet (Malaysia)
VENTURE CAPITAL TERM SHEET
Companies Act 2016 | Contracts Act 1950 | SC Guidelines on Private Equity and Venture Capital 2015
Date: [Term Sheet Date]
Investor: [Investor Name]
Company: [Company Name], [Company Address]
Founders: [Founder Names]
This Term Sheet summarises the principal terms on which [Investor Name] (the "Investor") proposes to invest in [Company Name] (the "Company"). The commercial terms set out herein are non-binding (except where stated to be binding) and are subject to completion of satisfactory due diligence and execution of definitive investment agreements.
1. VALUATION AND INVESTMENT
Pre-Money Valuation: [Pre-Money Valuation]
Investment Amount: [Investment Amount]
Post-Money Valuation: [Post-Money Valuation]
Investor Equity: [Investor Equity %] of the fully diluted post-money share capital
Share Class: [Share Class]
Subscription Price: [Subscription Price Per Share]
Shares shall be allotted under Section 75 of the Companies Act 2016. The Company shall hold an Extraordinary General Meeting (EGM) under Section 85 of the Companies Act 2016 to approve the share issuance and amend the Constitution to incorporate the rights of the [Share Class]. Form 17 (allotment return) shall be filed with SSM within 14 days of allotment.
2. INVESTOR RIGHTS AND PROTECTIONS
Liquidation Preference: [Liquidation Preference] — the Investor recovers the stated multiple of the Investment Amount before ordinary shareholders receive any distribution in a sale, liquidation, or winding-up under Section 524 of the Companies Act 2016.
Anti-Dilution: [Anti-Dilution] — the conversion ratio of the Investor's shares shall be adjusted if new shares are issued at a price below the Investor's subscription price.
Board Rights: [Board Rights]
Information Rights: The Investor shall receive monthly management accounts within 15 days of month-end, quarterly management accounts, and annual audited financial statements prepared by a Malaysian Institute of Accountants (MIA) registered auditor within 120 days of financial year-end.
Pre-Emptive Rights: The Investor shall have pre-emptive rights on any new share issuance under Section 85 of the Companies Act 2016, enabling the Investor to maintain its pro-rata equity percentage.
Veto Rights: The Investor's prior written consent is required for: new share issuances; related-party transactions; change of core business; acquisition or disposal of assets above RM 500,000; and incurrence of debt above RM 500,000.
3. EXIT PROVISIONS
Target Exit: [Target Exit] within [Target Exit Period] years from the date of this Term Sheet.
Drag-Along: The Investor and Founders holding above 75% of shares may compel all other shareholders to sell on the same terms in an approved trade sale.
Tag-Along: The Investor has the right to participate in any sale of shares by the Founders on the same terms, pro-rata to the Investor's shareholding.
Redemption: If no exit event occurs within [Target Exit Period] years, the Investor may require the Company to redeem the Investor's shares at the greater of cost or fair market value as determined by an independent valuer.
4. BINDING PROVISIONS
The following provisions are legally binding on the parties under the Contracts Act 1950:
Exclusivity: For a period of [Exclusivity Period] days from the date of this Term Sheet, the Company and its Founders shall not solicit, encourage, or entertain any competing investment offers or engage in discussions with any third party regarding an equity investment in the Company.
Confidentiality: All terms and information disclosed in connection with this Term Sheet are confidential and may not be disclosed to any third party without the Investor's prior written consent.
Governing Law: [Governing Law].
All other terms in this Term Sheet are non-binding indications of interest only and do not constitute a binding commitment to invest. Completion of the investment is subject to: (a) satisfactory legal, financial, and commercial due diligence; (b) execution of definitive Subscription Agreement and Shareholders Agreement; and (c) SC regulatory compliance under the Guidelines on Private Equity and Venture Capital 2015.
Investor
________________
Signature
Company (authorised signatory)
________________
Signature
Founder
________________
Signature
What Is a VC Term Sheet (Malaysia)?
A VC Term Sheet in Malaysia sets out preliminary terms the parties intend to develop into a binding agreement.
Venture capital funds operating in Malaysia are regulated by the Securities Commission Malaysia (SC) under the Guidelines on Private Equity and Venture Capital 2015, which require registration of VC and PE fund managers with the SC and compliance with conduct obligations under the Capital Markets and Services Act 2007 (CMSA 2007). The SC's Guidelines on Digital Assets 2020 and the Equity Crowdfunding (ECF) framework additionally regulate early-stage funding for technology startups. Government-linked venture capital bodies — including Malaysia Venture Capital Management Berhad (MAVCAP), Cradle Fund Sdn Bhd, and Khazanah Nasional's VC arm — deploy public capital under the Ministry of Finance's National Technology and Innovation Sandbox (NTIS) framework.
A VC Term Sheet in Malaysia typically covers: pre-money and post-money valuation; the class of shares subscribed (commonly Preference Shares, Series A, B, C, with specific rights under the Companies Act 2016, Section 90); liquidation preference; anti-dilution protection (broad-based or narrow-based weighted average, or full ratchet); investor rights (information rights, board representation, veto rights); and exit provisions (drag-along, tag-along, redemption rights, and IPO requirements on Bursa Malaysia's ACE Market or LEAP Market). The Term Sheet may include binding provisions on exclusivity (no-shop) and confidentiality even where the commercial terms are non-binding.
The Contracts Act 1950 governs the enforceability of the binding provisions. A Term Sheet's non-binding commercial terms create no contractual obligation to complete the investment but may give rise to liability under promissory estoppel or pre-contractual bad faith doctrines if a party withdraws without reasonable justification after significant reliance — a principle recognised by the Malaysian Court of Appeal in Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010].
For Islamic venture capital (IVC) — a growing segment of Malaysia's Islamic finance ecosystem — the Term Sheet may incorporate Shariah-compliant investment structures such as musharakah (equity partnership) or mudarabah (profit-sharing), endorsed by Bank Negara Malaysia's Shariah Advisory Council (SAC) under Section 51 of the Central Bank of Malaysia Act 2009. Malaysia's Islamic venture capital framework is supported by the SC's Islamic Capital Market initiatives and MIFC (Malaysia International Islamic Financial Centre).
When Do You Need a VC Term Sheet (Malaysia)?
A VC Term Sheet in Malaysia is required at the early stage of a venture capital investment process, before definitive legal agreements are drafted.
A VC Term Sheet is needed when a registered VC fund manager under the SC's Guidelines on Private Equity and Venture Capital 2015 wishes to formalise the commercial terms of a proposed equity investment in a Malaysian tech startup, prior to instructing solicitors to prepare a Shareholders Agreement and Subscription Agreement under the Companies Act 2016.
A VC Term Sheet is required when government-linked venture capital bodies such as MAVCAP, Cradle Fund Sdn Bhd, or Malaysia Digital Economy Corporation (MDEC) propose a seed or Series A investment in a startup operating under the Malaysia Digital (MD) Status programme or the National Technology and Innovation Sandbox (NTIS) administered by the Ministry of Science, Technology and Innovation (MOSTI).
A VC Term Sheet is needed when a Malaysian startup founder receives competing term sheets from multiple investors — domestic VC funds and foreign investors — and requires a structured document to compare valuation, dilution, and governance terms before selecting a lead investor and granting exclusivity for due diligence.
A VC Term Sheet is required when a startup company structured as a private limited company (Sdn Bhd) under the Companies Act 2016 needs to formalise a bridge financing round — convertible note, SAFE (Simple Agreement for Future Equity), or preference share issuance — bridging to a full Series A round led by an institutional VC fund.
A VC Term Sheet is needed when a foreign VC fund investing in a Malaysian company must comply with the Foreign Investment Committee (FIC) guidelines administered by the Economic Planning Unit (EPU) under the Prime Minister's Department, and requires a term sheet documenting the proposed equity structure and shareholding percentages for FIC approval purposes.
A VC Term Sheet is required when an Islamic venture capital fund deploying musharakah or mudarabah capital under BNM's Value-Based Intermediation (VBI) framework needs to document Shariah-compliant investment terms, profit-sharing ratios, and loss-sharing mechanisms before finalising the definitive Islamic investment agreement.
What to Include in Your VC Term Sheet (Malaysia)
A thorough VC Term Sheet for Malaysia must contain the following essential elements.
Parties and Company Details: The Term Sheet must identify the investor(s) (VC fund or fund manager registered with the SC under the Guidelines on Private Equity and Venture Capital 2015) and the target company (private limited company registered with SSM under the Companies Act 2016 or public company listed on Bursa Malaysia). The company's SSM registration number, registered address, and current authorised and issued share capital must be stated.
Valuation: The Term Sheet must state the pre-money valuation and, after the proposed investment, the post-money valuation. These determine the investor's percentage equity stake. Malaysian VC practice generally values early-stage companies on discounted cash flow (DCF), revenue multiples, or comparable transaction analysis — methodologies familiar to Malaysian VC practitioners and required for SC reporting under the Guidelines on Private Equity and Venture Capital 2015.
Investment Amount and Share Class: The Term Sheet must specify the total investment amount in Malaysian Ringgit (MYR RM), the class of shares subscribed (ordinary shares or preference shares under Section 90 of the Companies Act 2016), and the subscription price per share. Preference shares in Malaysian VC transactions typically carry preferential dividend rights, liquidation preference, and conversion rights into ordinary shares.
Liquidation Preference: The Term Sheet must state whether the investor's shares carry a 1x, 1.5x, or 2x non-participating or participating liquidation preference — meaning the investor recovers a multiple of the investment amount before ordinary shareholders receive any distribution in a sale, liquidation, or winding-up under the Companies Act 2016, Section 524.
Anti-Dilution Protection: The Term Sheet must specify whether anti-dilution protection is full ratchet (most investor-friendly) or weighted average (broad-based or narrow-based) — adjusting the conversion ratio of preference shares if new shares are issued at a lower price than the investor's subscription price. The formula must be consistent with the share provisions in the Articles of Association under the Companies Act 2016.
Board Composition and Investor Rights: The Term Sheet must specify the investor's right to nominate one or more directors to the Board under the Companies Act 2016, Section 211; investor veto rights over material company decisions (e.g., new share issuances, related-party transactions, change of business); information rights (monthly management accounts, annual audited financials); and pre-emptive rights on future share issuances.
Exit Provisions: The Term Sheet must address drag-along rights (enabling majority shareholders to compel minority shareholders to accept a trade sale offer), tag-along rights (enabling minority investors to join a trade sale), IPO rights (targeting Bursa Malaysia's ACE Market or LEAP Market under Bursa Malaysia Listing Requirements), and redemption rights allowing the investor to require the company to redeem shares after a specified period if no exit event occurs.
Binding and Non-Binding Provisions: The Term Sheet must clearly state which provisions are legally binding — typically the no-shop/exclusivity clause, confidentiality, and governing law — and which are non-binding commercial terms subject to definitive agreements. The binding provisions are enforceable under the Contracts Act 1950. The forms-legal.com VC Term Sheet (Malaysia) template covers the mandatory elements under Companies Act 2016 (Act 777).
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author = {{Forms Legal}},
title = {VC Term Sheet (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/business/contracts/vc-term-sheet-malaysia}},
note = {Free legal document template. Based on Companies Act 2016 (Act 777)}
}Frequently Asked Questions
A VC Term Sheet in Malaysia is typically a partially binding document under the Contracts Act 1950. The commercial terms — valuation, investment amount, share class, liquidation preference, anti-dilution — are generally expressed as non-binding and subject to execution of definitive agreements (Shareholders Agreement and Subscription Agreement). However, specific provisions — the exclusivity/no-shop clause (preventing the company from soliciting competing offers during the due diligence period), the confidentiality clause, and the governing law clause — are typically stated to be legally binding and enforceable under the Contracts Act 1950. The Malaysian Court of Appeal in Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 3 CLJ 525 recognised that pre-contractual negotiations can give rise to promissory estoppel liability if one party acts to its detriment in reliance on representations made during negotiations. Parties should ensure the Term Sheet clearly delineates binding from non-binding provisions to avoid uncertainty.
Malaysian VC investments typically use preference shares created under Section 90 of the Companies Act 2016. Preference shares in a Malaysian VC context carry rights that are superior to ordinary shares and are specified in the company's Constitution (Articles of Association) filed with SSM. Common preference share rights include: preferential cumulative or non-cumulative dividends; liquidation preference (1x to 2x the subscription price) ensuring the investor recovers investment capital before ordinary shareholders in a sale or winding-up; conversion rights allowing conversion to ordinary shares (typically on a 1:1 basis subject to anti-dilution adjustment) at the option of the holder or automatically upon IPO; voting rights (typically on an as-converted basis); and redemption rights. The term 'Series A Preference Shares', 'Series B Preference Shares' refers to successive rounds of VC financing, each series having its own set of rights. The Companies Act 2016 allows considerable flexibility in designing preference share rights, provided they are stated in the company's Constitution.
After a VC Term Sheet is signed in Malaysia, the investment process proceeds through several stages. First, the investor conducts legal due diligence on the target company — reviewing its SSM incorporation documents, constitutional documents (Constitution/M&A), existing shareholder agreements, material contracts, intellectual property ownership, employment contracts, and regulatory licences (including any licences from the SC, BNM, or MDEC for digital economy companies). Second, the investor's solicitors draft the definitive Subscription Agreement and Shareholders Agreement (SHA) based on the Term Sheet terms. Third, the company holds a board meeting and extraordinary general meeting (EGM) under the Companies Act 2016, Section 85 to approve the share issuance, amend the Constitution to incorporate preference share rights, and pass the necessary resolutions. Fourth, the investor subscribes for and pays for the shares. Fifth, the company files Form 17 (allotment of shares) with SSM via MyCoID within 14 days of allotment under the Companies Act 2016. MAVCAP-led investments and government co-investments may require additional approval from the relevant government agency.
Foreign venture capital investment in Malaysian private companies is subject to the following regulatory considerations. Under Malaysia's investment policy liberalised in 2009, there are no mandatory equity bumiputera or foreign ownership restrictions for most technology and services sectors, but the Economic Planning Unit (EPU) under the Prime Minister's Department may require FIC notification or approval for transactions above RM 20 million involving dilution of Malay or bumiputera interests. Investments in licensed or regulated sectors — financial services (BNM), telecommunications (MCMC), energy (Energy Commission), and media (MCMC) — require sectoral approval. The Securities Commission Malaysia requires VC fund managers operating in Malaysia to register under the Guidelines on Private Equity and Venture Capital 2015. Foreign investors acquiring shares in companies with strategic national interest sectors must comply with the National Security Council (NSC) Guidelines on Foreign Investment in Strategic Industries. For Islamic VC structures, BNM approval may be required for instruments involving Islamic financial services.
A drag-along clause in a Malaysian VC term sheet is a provision that allows a specified majority of shareholders (typically the investor and/or founders holding above a threshold percentage, such as 75% or 80%) to compel all remaining shareholders to sell their shares on the same terms in a trade sale or acquisition. The drag-along clause protects the investor's exit rights by ensuring that a minority shareholder — often a founder or early employee holding ordinary shares — cannot block a sale approved by the majority. Under the Companies Act 2016, drag-along rights are contractual and must be stated in the Shareholders Agreement and, ideally, in the company's Constitution to bind all shareholders including future transferees. Malaysian courts will enforce drag-along clauses as contracts under the Contracts Act 1950, provided the terms are clear and the mechanism for invoking the drag-along is followed precisely. The drag-along is typically paired with a tag-along clause giving minority investors the right to join a sale initiated by the majority on the same terms.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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