What is a venture capital term sheet?

A term sheet is a nonbinding agreement outlining the basic terms and conditions under which an investment will be made. Term sheets are most often associated with startups. Entrepreneurs find that this document is crucial to attracting investors, such as venture capitalists (VC) with capital to fund enterprises.

Are VC term sheets binding?

The VC term sheet is a non-binding legal document that forms the basis of more enduring and legally binding documents, such as the Stock Purchase Agreement and Voting Agreement.

How do you read a venture capital term sheet?

How to Read a Term Sheet

Investors: Those who are investing money into the business.
Amount Raised: Total amount raised to date.
Price Per Share: Price of each share.
Pre-Money Valuation: Value of the company before investment.
Capitalization: Company’s shares multiplied by share price.

How do I get a term sheet?

The answer was simple: They ran a fundraising process, and if done well, it shouldn’t take more than a few weeks to secure a term sheet….

Step 1: Don’t meet anyone before you have your act together.
Step 2: Get your act together.
Step 3: VCs run a process and so should you.

Who prepares the term sheet?

A term sheet is a relatively short document that an investor prepares for presentation to the company in which the investor states the investment that he is willing to make in the company. This document is usually 5-8 pages in length.

Who provides the term sheet?

In a seed round, the investor will typically be the one providing the term sheet. This may change, especially when there are multiple investors in later and larger rounds.

Is a term sheet legally enforceable?

Terms sheets are generally not considered binding. When the term sheet is drafted, the language in the sheet can expressly state that the term sheet is non-binding. The language can also explicitly state the terms in the agreement that is binding.

What is the difference between an LOI and term sheet?

The main difference between the two is that a term sheet is simply a document that lays out the terms that both parties wish to include, and usually neither party will sign the document. The letter of intent, on the other hand, includes those terms but is singed by both parties involved.

How long does it take to get a term sheet?

Expect negotiation of the definitive documents to take about 4-5 weeks from the signing the term sheet, if the deal is on a normal pace. If there’s urgency to close sooner — such as the need to make payroll — be clear with the investor and your lawyers.