Definition
Term Sheet
A term sheet is the non-binding document that sets out the key terms of a proposed startup investment before definitive agreements are drafted.
A term sheet outlines valuation, investment amount, the type of security, liquidation preference, anti-dilution protection, board composition, protective provisions, pro-rata rights and founder vesting. Most clauses are non-binding (except confidentiality and exclusivity) and serve as the basis for the detailed shareholders' agreement and share-subscription agreement.
Signing a term sheet usually starts due diligence and a no-shop period. In India, the definitive documents must also align with the Companies Act and SEBI/FEMA rules where foreign investors are involved.
Related terms
- Liquidation PreferenceA liquidation preference gives preferred investors the right to get their money back (or a multiple of it) before common shareholders in an exit or wind-up.
- Anti-Dilution ProvisionAn anti-dilution provision protects investors from dilution if the company later raises money at a lower price than they paid.
- Due Diligence (VC)Due diligence is the investigation an investor conducts into a startup's finances, legal status, technology, team and market before investing.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.