Venture Capital Glossary

Term sheet

There is hardly any way around signing a term sheet when seeking financing for a start-up. A term sheet outlines the basic terms and conditions of a financing round (such as the amount of investment, valuation mechanics, share classes, anti-dilution protection, liquidation preferences, board composition, etc.).

Although a term sheet is typically not legally binding (with only a few exemptions, such as clauses on confidentiality and exclusivity), it is perhaps the most important document in the financing process. A signed term sheet serves as a blueprint for negotiating and finalising the definitive long-form legal documents and it demonstrates the commitment of the parties to closing the deal on such terms. Requests for substantial deviations from the term sheet are mostly not accepted (or traded against other requests) when negotiating binding long-form documents and a requesting party risks losing credibility vis-à-vis the other party and ultimately