Term Sheet
Definition
A non-binding agreement setting forth the basic terms and conditions under which an investment will be made.
Deep Dive
A term sheet is a non-binding preliminary agreement that outlines the basic terms and conditions under which an investment will be made, or a business transaction will occur. It serves as a blueprint or an outline for the more detailed, legally binding definitive agreements that will be drafted later. While generally not legally enforceable itself (with the common exceptions of confidentiality and exclusivity clauses), the term sheet is a critical document that signals a serious intent to proceed with a deal, allowing both parties to align expectations and negotiate the fundamental aspects of the transaction before incurring significant legal costs.
Examples & Use Cases
- 1A venture capital firm sends a term sheet to a startup detailing the proposed valuation, investment amount, equity percentage, and investor rights for a Series A funding round
- 2Two companies negotiating a merger outline the key parameters such as the purchase price, stock exchange ratio, leadership structure, and timelines in a preliminary term sheet
- 3A real estate developer proposing a joint venture with an investor draws up a term sheet specifying the capital contributions, profit-sharing arrangement, responsibilities of each party, and exit strategies.