Term Sheet

Definition:

A term sheet is a non-binding document that outlines the key terms of a proposed investment or transaction between two parties. It typically includes essential details such as the company’s name, the investor’s name, the investment amount, price per share, and other pertinent terms.

Key Components:

• Company Information: Company name, industry, location, revenue, and other relevant information.
• Investment Parameters: Investment amount, price per share, and any dilution provisions.
• Financial Projections: Projected revenue, growth rates, and profitability.
• Governance: Voting rights, shareholder agreements, and management structure.
• Purchase Price: Payment terms, delivery schedule, and any fees associated with the purchase.
• Conditions to Closing: Conditions that must be met before the investment can close.
• Miscellaneous: Non-financial terms, such as confidentiality, indemnification, and escrow.

Purpose:

• To provide a clear and concise summary of the proposed investment terms.
• To facilitate negotiations between the parties.
• To serve as a basis for a formal investment agreement.
• To provide a framework for due diligence and analysis.

Example:

A term sheet for a venture capital investment in a technology company might include the following key terms:

• Company Name: XYZ Technologies Inc.
• Investor Name: ABC Ventures
• Investment Amount: $5 million
• Price per Share: $10
• Voting Rights: 20%
• Management Structure: Majority control by ABC Ventures
• Purchase Price: Cash on closing
• Conditions to Closing: Completion of due diligence and approval of the investment agreement
• Confidentiality: Both parties agree to keep confidential the terms of the deal.

Note:

Term sheets are typically non-binding, meaning that the parties are not obligated to complete the transaction. However, they can serve as a starting point for negotiations and due diligence.