Term+Sheets

A term sheet is a letter of intent prepared by a venture capital firm to (1) summarize all the important financial and legal terms related to a transaction and (2) quantify the value of the venture capital financing.

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.

This file presents an in-depth example of a term sheet offered for instructional purposes by the [|National Venture Capital Association]. (2011 version)

This file contains an example of a term sheet I used in an MBA-level Venture Capital Investment Challenge at the University of Maryland in 2000.