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Term Sheet
A non-binding document outlining the key terms of a proposed investment before final legal documents are drafted.
Formula
No formula - term sheet is a document outlining proposed investment terms.
Typically 5-10 pages covering economics, control, and protective provisions.
Definition
What is a Term Sheet?
A term sheet is a non-binding document outlining the key terms of a proposed investment. It covers valuation, investment amount, liquidation preferences, board composition, and other important provisions before lawyers draft final documents.
Term sheets are typically non-binding except for confidentiality and exclusivity (no-shop) clauses. They serve as the framework for negotiation before committing to expensive legal work.
Key Term Sheet Sections
Economic terms: Valuation, investment amount, option pool. Control terms: Board composition, voting rights, protective provisions. Investor rights: Pro rata, anti-dilution, information rights. Other: Exclusivity period, confidentiality, conditions to close.
Negotiating Term Sheets
Focus on what matters most: valuation, board control, and liquidation preferences. Many other terms are standard. Get experienced counsel to review before signing. The exclusivity clause prevents shopping the term sheet to other investors.
Example
Key term sheet sections:
- Valuation: $10M pre-money
- Investment: $2.5M Series A
- Liquidation preference: 1x non-participating
- Board seats: 2 founders, 1 investor, 2 independent
- Pro rata rights: Yes, for investments over $500K
- Anti-dilution: Broad-based weighted average
Most terms are negotiable except valuation and amount.
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