Term Sheet: Need & Benefits

Term Sheet Drafting

If you are a to be an entrepreneur or a potential investor you are likely to encounter a term sheet at some point in time.

What is the term sheet?

It is a non-binding agreement that lays out the basic terms and conditions under which a contract will be made. A term sheet is a contract through which the parties agree not to disclose information covered by the agreement.

A term sheet creates a confidential relationship between the parties and it details what you as the startup are giving and what are you getting in return. Term sheets are generally associated with startups because entrepreneurs find that this document is an important document to attract investors.

Why term sheet is important?

Term sheets are important and can be complex, but they don’t necessarily have to be. It can be simple and easy to understand a document if you take legal advice before signing them.

There are three sections a term sheet covers:

  1. Funding
  2. Corporate governance
  3. Liquidation.

The term sheet is important for both investors and founders before having any merger or raising funds.

What are the benefits of the term sheet?

It is used as part of a merger or attempted acquisition that would typically contain information regarding the initial purchase price offer and preferred payment method, as well as what assets are included in the deal.

Elements like information pertaining to the identification of the parties involved, information about all involved assets, valuation, preferred payments, the initial purchase price including contingencies that may affect that price are included in a term sheet.

When dealing with investors such as Angels or even Venture Capital firms the term sheet will be provided after presenting during a partners meeting. This will be the time when all the partners of the firm get together in a conference room in order to have the founder present her pitch deck. If the presentation satisfies all concerns then a term sheet is presented to the founder.

So, if you are raising funds from Angel Investors or Venture Capital, then you must consider getting the term sheet drafted by the legal team of SL Legal – a venture of StartupLanes.