Term sheet

What is a Term Sheet ?

Term sheets also called as 'letter of intent' are an important part of the investment process, acting as a non-binding agreement that outlines the basic terms and conditions of an investment. They are most commonly associated with start-ups, but can be used in a variety of other business transactions.

The purpose of a term sheet is to establish a framework for negotiations between the parties involved in a transaction.Term sheets are significant because they help to streamline the negotiation process by providing a clear set of terms and conditions that both parties can agree on. They also help to reduce the risk of misunderstandings or disputes by providing a written record of the agreed-upon terms.

Key Components of a Startup-Term Sheet 

Important conditions a startup must consider in their term sheet are :

  • Valuation and Capitalization
  • Financing and Investment Structure
  • Founder and Employee Matters
  • Voting Rights and Governance
  • Liquidation Preferences
  • Anti-Dilution Provisions
  • Dividends
  • Redemption Rights
  • Conversion Rights
  • Warranties and Representations
  • Conditions Precedent to Financing
  • Right of First Refusal and Co-Sale
  • No-Shop and Confidentiality Provisions
  • Assignment and Transferability