Term Sheet

A term sheet is a bullet form outlining the ideas of an organization. It also shows the business agreements and promises made to their customers for achieving the tasks. It also mentions the legal counsel in the preparation of a proposed final agreement. It is a non-binding agreement in which each point from basic to the important points all are mentioned in it with bullet forms. Term sheet is the most important document, which is need to be made under documentation for a customer or investor to analyze the potential of an organization.

The different categories of term sheets have varying structures and features. For example a term sheet prepared for funding will contain the following:

  • Purchase price
  • Proposed timing and process
  • Conditions to closing
  • Confidentiality, exclusivity and other key terms and conditions, if applicable

Term sheets are non-binding and merely acts as a comprehensive agenda for further negotiations and a template for drafting the actual agreement.

Components included in Term sheet

Term sheet highlights the following:

  • The valuation of the company
  • Form of investment by investors
  • The amount and timing of investment
  • Price-based anti-dilution protection in connection with future sales of the company’s stock
  • The number of directors the investors can elect
  • Vesting of the founders’ stock


FAQs :


1. What does term sheet mean?

A term sheet is a nonbinding 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.

2. Is a term sheet legally binding?

A term sheet may be legally binding.

3. What is term sheet negotiation?

While the terms of the business arrangement are not legally binding, the term sheet is the chief document used by legal counsel to prepare the final agreement and to resolve any disputes that may arise in negotiation.

4. What is a VC term sheet?

The term sheet is the document that outlines the terms by which an investor will make a financial investment in your company. Term sheets tend to consist of three sections: funding, corporate governance and liquidation.

 

5. What are the elements of a VC term sheet?

a. Preferred return

b. Protection of valuation and position in regards to future money

c. Investment management

d. Exit strategies

6. What is term sheet agreement?

A term sheet is a nonbinding 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.