Legal & Equity

Term Sheet

Also Known As

TSInvestment Terms

A term sheet is a non-binding document that outlines the key terms and conditions of a proposed investment, serving as the basis for negotiation before formal legal agreements are drafted.

What is a Term Sheet?

A term sheet is the document investors present when they want to invest. It outlines the deal terms before lawyers draft binding agreements. Think of it as a handshake before the contract.

Key Term Sheet Elements

Economics:

Valuation (pre-money/post-money)
Investment amount
Equity percentage
Option pool

Control:

Board seats
Voting rights
Protective provisions

Liquidation:

Liquidation preference
Participation rights

Other:

Anti-dilution provisions
Pro-rata rights
Information rights
Founder vesting

Term Sheet Timeline

Investor issues term sheet
Negotiation (1-2 weeks)
Sign term sheet
Due diligence (2-6 weeks)
Legal documentation
Close funding

Term Sheet vs Binding Agreement

Term sheets are typically non-binding
Except: Exclusivity and confidentiality clauses
Final terms may change during DD

Example Usage

“After a strong pitch, the VC issued a term sheet within 48 hours.”

Related Terms

Valuation

More Legal & Equity Terms

Equity

Equity represents ownership interest in a company, typically expressed as shares of stock. In startups, equity is distributed among founders, investors, and employees as compensation and investment.

Cap Table

A cap table (capitalization table) is a detailed spreadsheet or ledger that lists all shareholders in a company, the types of equity they hold, their ownership percentages, and how ownership changes over time.

Vesting

Vesting is the process by which equity ownership is earned over time, protecting companies from early departures and ensuring that founders and employees remain committed to long-term success.

Dilution

Dilution occurs when a company issues new shares, reducing the ownership percentage of existing shareholders even though their number of shares remains the same.

Sweat Equity

Sweat equity is company ownership earned through labor and effort rather than cash investment, typically granted to founders, early employees, or advisors who contribute work in exchange for equity.

View All Glossary Terms