Term Sheet

Key Highlights

• A term sheet is an early outline of a potential deal.

• A term sheet is a critical document as it sets the foundation for the final agreement and helps ensure that all parties have a clear understanding of the deal's key terms, reducing the potential for disputes later on.

What is Term Sheet?

A term sheet is an early outline of a potential deal. It lays out the main terms and conditions both sides are thinking of agreeing to- things like how much money is involved, who gets what, and how the deal might work. It’s not legally binding, but it helps everyone get on the same page before moving forward.

Key Points

• What It Does: A term sheet gets everyone on the same page about the key details of a deal, like how much money is involved and what each side gets, saving time and money before final contracts are written.

• Mostly Non-Binding: Most parts of a term sheet aren’t legally enforceable, but some sections, like keeping things confidential or agreeing not to negotiate with others, can be binding.

• What’s Included:

1. Valuation: The company’s worth before and after the investment.

2. Investment Amount: How much money the investor is putting in.

3. Equity: What kind of ownership (like shares) the investor gets.

4. Control: Investor rights, like having a say on the board or voting power.

5. Payment Priority: Who gets paid first if the company is sold or shuts down.

6. Anti-Dilution: A clause that protects investors from losing ownership percentage when new shares are issued.

7. Exit Plans: Ideas for how investors might cash out, like through a sale or IPO.
Conditions: Things that need to happen before the deal closes, like passing inspections.

Why It Matters?

A term sheet is a critical document as it sets the foundation for the final agreement and helps ensure that all parties have a clear understanding of the deal's key terms, reducing the potential for disputes later on.