Draft Fund Term Sheet Scenario 02

Skill: Draft Fund Term Sheet with Issues Memo

1. Subject-matter triage

• Treat this as a fund-formation drafting exercise, not a generic summary.
• Read the source set in full before drafting; separate current controlling economics, governance, and operational mechanics from stale or illustrative language.
• If the source set contains multiple draft generations, identify which document is operative for each topic before writing the term sheet.
• Draft the term sheet first as the primary deliverable; prepare the issues memo only after the term sheet text is complete and internally consistent.

2. Failure modes the skill is correcting

• Treating the issues memo as a narrative of observations rather than a decision document that resolves each conflict and ties the resolution back to the draft term sheet.
• Missing conflicts across documents on follow-on authority, consent rights, fee base, recycling, carry mechanics, or governance mechanics.
• Carrying forward a weaker key-person standard without testing it against dedicated-fund market practice.
• Failing to specify how recycled proceeds interact with the management-fee base and any post-investment-period step-down.
• Overlooking carry escrow, no-fault removal, or other economics that can materially shift investor protections.
• Drafting the term sheet at a level of abstraction that leaves the investor unable to see the operative business deal.

3. Legal frameworks / domain conventions that apply

• Use market-standard fund-term-sheet organization and terminology for an emerging-manager growth equity fund.
• Align economics, governance, and operations with the governing fund documents, not with any informal summary.
• Where the source set conflicts, the controlling document hierarchy should drive the draft; reflect the hierarchy explicitly in the issues memo.
• For post-investment-period follow-ons, state whether new investments or follow-on investments require LP or LPAC consent, and reconcile any broader draft language to the consent framework in the source materials.
• For GP commitment, reconcile inconsistent formulations by identifying the current controlling version and treating any placeholder amount as subordinate to the percentage formulation if the fund size is not final.
• For key-person provisions, test the devotion standard against institutional expectations for dedicated managers; weaker formulations should be flagged as negotiation points.
• For recycling and fee base, state whether recycled capital counts toward committed-capital fees or is excluded, and whether the fee base steps down after the investment period.
• For carry escrow, state the escrow percentage and duration in general terms and flag unusually protective or restrictive mechanics as off-market.
• For no-fault removal, review whether accrued but unrealized carry survives through the removal date and flag any forfeiture approach that departs from market practice.

4. Analytical scaffolds

1. Read all source documents systematically, including drafts, side letters, offering materials, internal memoranda, and prior-fund forms if present.
2. Enumerate each distinct issue category before analysis when multiple documents, periods, parties, or mechanics are implicated; do not collapse separate questions into one pass.
3. For each issue, identify the conflicting language, the governing source or document hierarchy, the recommended resolution, and the downstream effect on the draft term sheet.
4. For each off-market term, state the market context, assess negotiation risk, and revise the draft toward a market-standard formulation unless the source set clearly supports a deliberate deviation.
5. For each issue, tie the analysis to the relevant economic, governance, or operational consequence for the fund and its investors.
6. Write the term sheet in a professional investor-ready style; avoid commentary in the operative draft.
7. Write the issues memo as a decision document: describe the issue, state the resolution, identify any remaining open items, and flag whether partner judgment is needed.

5. Vertical / structural / temporal relationships

• Distinguish among draft term sheet language, governing fund documents, and ancillary fundraising materials; not all source materials carry equal weight.
• Where later materials modify earlier ones, treat the later, more specific, or executed version as controlling if the source set supports that conclusion.
• Pay special attention to temporal mechanics: investment period, post-investment period, fee step-downs, follow-on rights, recycling windows, escrow duration, and removal dates.
• Analyze how one provision changes another: for example, recycling can affect the fee base, follow-on authority can affect consent rights, and no-fault removal can affect accrued carry treatment.

6. Output structure conventions

• Produce two deliverables: an investor-ready fund term sheet and a term-sheet issues memo.
• The term sheet should use conventional fund sections covering the fund overview, strategy, term, fees, carry, distributions, GP commitment, key persons, governance, transfer restrictions, and reporting.
• The issues memo should be organized by issue and should include, for each entry, a clear severity level using a uniform ordinal scale defined once at the top, a concise conflict description, the controlling source and rationale, the recommended resolution, and any open items requiring review.
• Every issue entry should end with the practical consequence of the issue for the fund, investors, or closing process.
• End the memo with a short Recommended Actions block that assigns each action to the relevant role and ties it to a timing anchor drawn from the transaction.
• When legal authority is invoked, name the controlling rule, statute, regulation, or market-practice source rather than stating conclusions in bare form.
• Keep the draft precise and investor-facing; avoid speculative language, unnecessary hedging, or internal process notes in the operative term sheet.