Venture Capital Term Sheet (Singapore)

A Venture Capital Term Sheet in Singapore records the parties' shared intentions and the framework for a contemplated transaction.

A Venture Capital Term Sheet is required when a startup is seeking early-stage or growth-stage equity investment from a professional venture capital investor. Use the term sheet after the startup has pitched to the VC, received preliminary investor interest, and both parties wish to move forward toward a formal investment. The term sheet signals that the investor has decided in principle to invest and commits both parties to negotiating final legal documents on the basis of the outlined terms. Create the term sheet before signing any binding Shareholders' Agreement or Investment Subscription Agreement, as the term sheet establishes the key business terms that will be reflected in those thorough agreements. The term sheet is especially important if the startup has multiple founders or existing investors, as it confirms all parties understand and agree to the dilution of their ownership and the new investor's governance rights. Use the term sheet if the startup is raising a substantial amount (e.g., above SGD 1 million) and the investor is a professional VC firm (rather than a casual angel investor). For smaller investments or friends-and-family rounds, a simpler term sheet or a direct investment agreement may suffice. Prepare the term sheet early in the negotiation process to allow time for due diligence and legal documentation. Most VC investments in Singapore take 3-6 months from term sheet signature to completion (closing) of the investment. The term sheet should be signed before the VC fund's investment committee makes a final commitment to invest, so the term sheet confirms the investment committee's decision. After term sheet signature, both parties typically have a 60-90 day exclusivity period during which the startup cannot negotiate with competing investors. This exclusivity confirms the VC has time to complete due diligence without the startup shopping for better terms elsewhere. Under Singapore law, the Companies Act 1967 (Cap. 50) and the Singapore common law of contract govern the core requirements for this type of document.

The term sheet identifies the investor (VC fund name, investor partner name, jurisdiction), the company (startup name, incorporation date, registered address under the ACRA registry), and the investment amount in Singapore dollars. The valuation section specifies the company's pre-money valuation (the company's value before the investment) and post-money valuation (the company's value after the investment is included). For example, if the term sheet specifies a SGD 5 million pre-money valuation and a SGD 10 million post-money valuation, the investor is investing SGD 5 million and will own 50% of the company post-investment. The security type section specifies whether the investor receives ordinary shares (common equity), preferred shares (with special rights and protections), or convertible instruments (debt or preferred shares that convert to equity upon a specified event). Preferred shares typically include liquidation preferences (the investor receives their investment back first before founders receive distributions) and anti-dilution rights (the investor's ownership percentage is protected if the company raises additional capital at a lower valuation). The governance rights section outlines the investor's board seat (the investor appoints a director to the company's board), information rights (the investor receives quarterly financial statements and annual audits), and protective provisions (the investor has veto rights over major decisions such as mergers, asset sales, or additional borrowing). The board composition section specifies the total number of board seats and how they are allocated: the investor appoints one seat, the founder appoints one seat, and an independent director is appointed by mutual agreement. The liquidation preference section specifies the investor's priority in a liquidation or sale event: a one-time liquidation preference means the investor receives their investment back in full before founders receive anything; a participating liquidation preference means the investor receives their investment back and also participates in remaining proceeds alongside founders. The anti-dilution section specifies how the investor's ownership is protected if the company raises future capital at a lower valuation (down round). Common anti-dilution approaches are weighted average (the investor's conversion price is adjusted downward proportionally) and full ratchet (the investor's conversion price is adjusted to match the new lower valuation, maximizing the investor's protection but severely diluting founders). The conversion section specifies the circumstances under which preferred shares convert to ordinary shares (typically upon IPO or a specified event). The drag-along rights section allows the majority shareholders to force minority shareholders (including founders) to sell their shares in a sale event, preventing founders from blocking the sale. The tag-along rights section allows minority shareholders to participate in a sale by selling their shares alongside majority shareholders at the same price. The use of proceeds section describes how the investment capital will be deployed: product development, sales and marketing, hiring, or working capital. The employment section specifies the founder's employment status (full-time, part-time) and compensation. The key-person section identifies critical employees (co-founders, CTO) whose departure may trigger investor exit rights. The exclusivity and confidentiality section restricts the startup from negotiating with competing investors during the exclusivity period (typically 60 days) and requires both parties to keep the term sheet and investment terms confidential. The forms-legal.com Venture Capital Term Sheet (Singapore) template covers the mandatory elements under the Companies Act 1967 (Cap. 50). Under Singapore law, the Companies Act 1967 (Cap. 50) and the Singapore common law of contract govern the core requirements for this type of document.