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  • Writer's pictureAccounString Management Private Limited

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

4. Consideration

5. Valuation

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.

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Vikas Thakur
Vikas Thakur
20 feb

Understanding Term Sheets in Business Transactions

Introduction: A Term Sheet is a preliminary, nonbonding agreement that outlines the fundamental terms and conditions of an investment or business transaction. It serves as a blueprint for subsequent legally binding documents, providing a framework for negotiations and agreements between parties.

Key Components of a Term Sheet:

  1. Company Valuation: Estimated value of the company or asset involved in the transaction.

  2. Investment Amount: The sum of money being invested by the investor(s).

  3. Percentage Stake: The ownership percentage of the company or asset that the investor will acquire post-investment.

  4. Voting Rights: Rights conferred upon the investor in decision-making processes within the company.

  5. Liquidation Preference: Order of priority for repayment in case of the company's liquidation or exit.

  6. Anti-Dilutive Provisions: Mechanisms to protect the…

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