Term Sheet
A non-binding document that outlines the key terms and conditions of a proposed investment or business agreement.
Definition
A term sheet is a summary of the principal terms of a proposed investment. While typically non-binding, it serves as a template to develop more detailed legal documents and helps ensure that both parties understand the basic structure before investing time and money in legal documentation.
Key Components
- • Valuation: Pre-money and post-money valuation
- • Investment Amount: Total funding and investor allocation
- • Liquidation Preference: Priority in exit scenarios
- • Board Composition: Board seats and voting rights
- • Protective Provisions: Investor approval rights
- • Anti-Dilution: Protection against down rounds
- • Option Pool: Employee stock option allocation
Real-World Example
Series A Term Sheet: $5M investment at $15M pre-money valuation
The term sheet outlines 25% ownership for investors, 1x liquidation preference, one board seat, and standard protective provisions.