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Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis by Keith A. Allman

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CHAPTER 5

The Term Sheet and Definitive Documentation

Transactions are rarely finalized on verbal agreement alone, particularly corporate investments that could have a number of complexities that establish parties’ rights and protections. Ultimately, the documents that govern the transaction are solidified in formal binding agreements and articles, but a term sheet is typically created first. The term sheet lays out the transaction on paper and creates a basis for understanding. The intent is for all parties to be in agreement on terms prior to launching resource and financially intensive legal due diligences and utilizing legal teams to craft final documents.

THE TERM SHEET

The purpose of the term sheet is to lay out core details of the investment so all parties understand exactly the terms of the investment. Additionally, there are legally binding clauses of the term sheet to govern certain circumstances prior to finalizing the investment.

Conventional market participants may notice a few unique clauses in this section related to impact investing. Impact investments seek to deliver a product or service to a specific segment of the socioeconomic population previously underserved. If, for whatever reasons, the company deviates from its target population and begins to serve a higher-income segment, it drifts from its original mission. Investors who invests in a company because of this social focus should protect their impact focus in various sections of the term sheet and eventually ...

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