A Term Sheet is set out as an offer from an investor to a company to purchase ordinary shares in the company.
A Term Sheet is a document used to set out the key financial and other terms of a proposed investment. Investors and shareholders of the company use a Term Sheet to achieve preliminary and conditional agreement to those key terms.
Provisions of a Term Sheet are not usually intended to be legally defining, except for some clauses such as confidentiality. Their investment proposed by their Term Sheet will be subject to the parties agreeing on the further documents (for example, the Seed Investment Agreement and Shareholders' Agreement), and the Term Sheet may contain conditions that need to be met before the investment is completed (known as "conditions precedent").
A Term Sheet is shorter and more direct than the final legal documentation needed to complete the investment. You can reach agreement on the basic terms more quickly. The Term Sheet is therefore used more as the basis to negotiation before drafting a more detailed legal document.
Any conditions precedent in the Term Sheet will show the shareholders of the company exactly what actions need to be taken before the completion date, which can reduce the risk of the investment being delayed.
When drafting a Term Sheet, it is important to focus on a number of key clauses, in particular: