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Term Sheet

A term sheet is a bullet-point document for startups which lays down the proposed terms and conditions for investment and is only for discussion purposes. A well-structured investment term sheet acts as a base for final Agreements such as Shareholder’s Agreements. A term sheet is considered to be an essential document by the entrepreneurs to attract investors.

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Drafting Term Sheet

Introduction

A term sheet is a bullet-point document for startups which lays down the proposed terms and conditions for investment and is only for discussion purposes. A well-structured investment term sheet acts as a base for final Agreements such as Shareholder’s Agreements. A term sheet is considered to be an essential document by the entrepreneurs to attract investors.

Term Sheet assures that parties involved in the business transaction agree on the significant and fundamental aspects of the deal. On the other hand, it minimizes the chance of any misunderstanding and any unnecessary disputes between the parties in future.

Key Elements of Term Sheet

A term sheet mainly includes:

  • Details of the company, the current shareholders and the current directors
  • The valuation of the company
  • Reserved rights of the investors
  • Price per share
  • Voting rights
  • Details of what the invested funds will be used for
  • Any restrictions on the activities of the founders
  • A summary of the rights relating to the issue and transfer of shares
  • Liquidation preference
  • Anti-dilution provision
  • Exit Rights of the investors
  • Option pool
  • Information and Inspection rights
  • Arbitration clause
  • Governing Laws and Jurisdiction clause
  • Other essential terms and provisions

Drafting of a venture capital term sheet is simple with LegalWiz.in as it has experienced lawyers who ensure highest customer satisfaction and timely delivery of services. This entire process is managed online, with regular communication and assistance by the professionals available throughout. We have clients in all major cities of India including Mumbai, Delhi, Bangalore, Pune, Ahmedabad, Hyderabad and more as well as our services have equally relevant reach within smaller cities and towns in the country.

Explore Term Sheet

Non- binding

Mostly, term sheet agreement is non- binding in nature except for the confidentiality clause. Through the term sheet an investee can showcase their seriousness about the transaction without being legally bound or risking anything too soon. It also gives the investee more time to decide what covenants should be kept in the definitive agreements.

Reduces the chances of dispute

A term sheet includes the proposed terms and conditions and hence gives both the parties a fair idea of the future transaction. By having a term sheet before definitive documents both investor and investee can identify points of disagreement and negotiate upon those areas that plummets the chances of future disagreements and disputes.

Inherent Moral Obligation

Even if the term sheet does not contain any binding obligations, merely signing a term sheet can cause both investor and investee to be more committed towards the transaction as the document morally bounds them.

Provides clarity

A term sheet works as a proposal as it outlines the terms and conditions to be laid down in detail in the definitive agreements. It provides a clear picture of the transaction to the parties involved and reduces the scope of misunderstandings.