Termsheet

A term sheet, also referred to as a termsheet, is a concise document that outlines the principal terms and conditions under which an investor is willing to provide capital to a company. It is commonly used in venture capital, private equity, and strategic investment processes and serves as a blueprint for the forthcoming definitive agreements. While the term sheet itself is typically non-binding, certain provisions—such as confidentiality, exclusivity, and governing law—may be binding, and some terms may be locked in to guide due diligence and negotiations.

A term sheet generally covers key economic and control terms. These include the amount of the investment and the pre-money or post-money valuation, the type of security issued (usually preferred stock) and the resulting capital structure, liquidation preferences, and participation rights. It may specify anti-dilution provisions, vesting requirements for founders and key personnel, and any board or observer rights. Protective provisions can require investor consent for major actions, while information rights, rights of first refusal or co-sale, and drag-along or tag-along rights may be included. Additional terms commonly addressed are use of proceeds, closing conditions, and any covenants or representations and warranties.

The term sheet is a precursor to definitive agreements, such as a stock purchase agreement and investor rights agreement. After due diligence, the definitive documents are drafted and negotiated, and the deal closes if all conditions are satisfied. The term sheet helps align expectations and streamline negotiations while remaining a framework rather than a final contract.