What is a Term Sheet??
You might have come across this 'Term Sheet' word while discussing business or may be while watching Shark Tank India!!
In the context of startups, term sheet is the first formal — but non-binding — document between a startup founder and an investor. A term sheet lays out the terms and conditions for investment. It’s used to negotiate the final terms, which are then written up in a contract.
A good term sheet aligns the interests of the investors and the founders, because that’s better for everyone involved (and the company) in the long run. A bad term sheet pits investors and founders against each other.
Contents of Term Sheet
1. Information of the Parties
2. Nature of business of Parties
3. Object for which the parties intend to invest in such deal
6. Profit sharing / stake
7. Time period of completion of project
8. Distribution of work amongst the parties
9. Any other terms and conditions
Understanding the Term Sheet
Even though a term sheet is not legally binding, it is still a very important document because it sets the terms of an investment deal. It is important to note that while the term sheet itself may be non-binding, some of the conditions within it may be legally binding, such as exclusivity and confidentiality (more on these later).
Term sheets are generally short, often only one or two pages long and are usually written in relatively plain English rather than in complex legal jargon. But the terms are important and carry significant weight that can affect future funding rounds.