Glossary - Term Sheet
A term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. It serves as a template to develop more detailed legal documents. The term sheet summarizes the key financial and legal terms of the deal, including valuation, investment amount, governance, and liquidation preferences.
Also known as
- Heads of Terms
- Letter of Intent (LOI)
- Memorandum of Understanding (MOU)
Use cases examples
- Venture Financing Round: The term sheet outlined the proposed $5 million investment for a 20% equity stake in the startup, detailing valuation methods, voting rights, and anti-dilution protections.
- Seed Funding Agreement: The term sheet specified the amount of seed funding provided by angel investors, including the conversion mechanics for the convertible notes and the valuation cap.
Considerations for investors
- Ensuring that the terms protect their investment, including preferences on liquidation and anti-dilution protections.
- The clarity of the exit strategy and how the investment aligns with their portfolio and risk profile.
Considerations for founders
- Understanding the valuation and dilution implications of the investment terms.
- The impact of governance terms such as board composition and voting rights on the company's control and decision-making.
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