term sheet
A non-binding document outlining the key terms and conditions of an investment deal, serving as the basis for negotiating the final legal agreements.
Example
“The VC firm issued a term sheet offering $5 million for 20% equity, subject to due diligence.”
Memory Tip
TERM SHEET = the deal's headline terms on one page. Not binding, but sets the stage for negotiation.
Why It Matters
Understanding term sheets helps investors recognize that initial agreements are flexible and subject to change before final commitment. This knowledge protects you from assuming preliminary discussions are binding obligations, allowing you to negotiate better terms or walk away if conditions shift unfavorably.
Common Misconception
Many people believe that signing a term sheet means the deal is locked in and legally binding. In reality, term sheets are typically non-binding documents that outline intentions, and the actual binding occurs only when final legal documents are executed.
In Practice
A venture capital firm presents a term sheet to a startup offering 2 million dollars for 20 percent equity at a 10 million dollar valuation. The founders review it, negotiate for better terms like lower equity dilution, and after weeks of discussion, both parties agree to 15 percent equity instead, then move forward to final legal documentation.
Etymology
TERM (conditions, provisions) SHEET (document). A SHEET of paper outlining the TERMS of a deal.
Common Misspellings
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