What are term sheets and why are they important?

What are term sheets and why are they important?

Term sheets are documents that outline the key terms and conditions of an investment or financing agreement. They are important because they serve as a blueprint for the final contract, helping both parties understand their rights and obligations.

What key components should I look for in a term sheet?

Key components include valuation, investment amount, equity stake, liquidation preferences, and board composition.

How do term sheets differ from contracts?

Term sheets are non-binding agreements that outline the main terms, while contracts are legally binding documents that finalize the agreement.

Can you give me an example of a common term in a term sheet?

A common term is the 'pre-money valuation,' which determines the company's value before the investment is made.

What happens if the terms in the term sheet change?

If terms change, both parties must agree to the new terms, and a revised term sheet may be issued before finalizing the contract.