Term Sheet
The Blueprint for Your Funding Round
Definition
A term sheet is a non-binding agreement that outlines the key terms and conditions of an investment. It serves as the blueprint for the final legal documents and governs the relationship between investors and founders.
In Simple Terms
A term sheet is like a "letter of intent" for your funding round. It lists the major terms—how much money you're raising, what valuation, who gets what shares, and what control the investors will have—before you spend money on lawyers.
Why It Matters
Term sheets are the foundation of every funding round. They determine your company's valuation, investor rights, founder equity, and governance structure. Understanding terms like liquidation preferences, pro-rata rights, and board seats is crucial for negotiating favorable terms.
Example
A typical term sheet might specify: "$2M at a $10M pre-money valuation, 20% equity for investors, 1x liquidation preference, and 2 board seats for investors." This tells you the investor is getting 20% ownership and has the right to get their money back before founders if the company is sold.