Term sheet
Encyclopedia
A term sheet is a bullet-point document outlining the material terms and conditions of a business agreement. After a term sheet has been "executed", it guides legal counsel in the preparation of a proposed "final agreement". It then guides, but is not necessarily binding, as the signatories negotiate, usually with legal counsel, the final terms of their agreement.
A term sheet implies the terms of a business transaction, as proposed by a party. It may be either binding or non-binding.
Term sheets are very similar to "letters of intent
" (LOI) in that they are both preliminary, mostly non-binding documents meant to record two or more parties' intentions to enter into a future agreement based on specified (but incomplete or preliminary) terms. The difference between the two is slight and mostly a matter of style: an LOI is typically written in letter form and focuses on the parties' intentions; a term sheet skips most of the formalities and lists deal terms in bullet-point or similar format. There is an implication that an LOI only refers to the final form. A term sheet may be a proposal, not an agreed-to document.
Within the context of venture capital financing, a term sheet typically includes conditions for financing a startup company
. The key offering terms in such a term sheet include (a) amount raised, (b) price per share, (c) pre-money valuation, (d) liquidation preference, (e) voting rights, (f) anti-dilution provisions, and (g) registration rights
A term sheet implies the terms of a business transaction, as proposed by a party. It may be either binding or non-binding.
Term sheets are very similar to "letters of intent
Letter of intent
A letter of intent is a document outlining an agreement between two or more parties before the agreement is finalized. The concept is similar to a heads of agreement...
" (LOI) in that they are both preliminary, mostly non-binding documents meant to record two or more parties' intentions to enter into a future agreement based on specified (but incomplete or preliminary) terms. The difference between the two is slight and mostly a matter of style: an LOI is typically written in letter form and focuses on the parties' intentions; a term sheet skips most of the formalities and lists deal terms in bullet-point or similar format. There is an implication that an LOI only refers to the final form. A term sheet may be a proposal, not an agreed-to document.
Within the context of venture capital financing, a term sheet typically includes conditions for financing a startup company
Startup company
A startup company or startup is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets...
. The key offering terms in such a term sheet include (a) amount raised, (b) price per share, (c) pre-money valuation, (d) liquidation preference, (e) voting rights, (f) anti-dilution provisions, and (g) registration rights
External links
- Definition from Investopedia
- http://nvca.org/index.php?option=com_content&view=article&id=108&Itemid=136 NVCA Model Term Sheet