A term sheet is a non-binding agreement outlining the basic terms and conditions for an investment that essentially serves as a foundation document for more detailed legal documents. Once everyone agrees on all the fancy terms on the term sheet, that’s when the longer contracts start to get drawn up. It’s good to get everyone on the same page, or “sheet” if you will, before detailed contracts are drawn up. This avoids any misunderstandings and can save a lot of future wasted time and money.
The only trouble is that term sheets are not really a legally binding agreements and so they can’t really be enforced in a court of law. Term sheets can be thought of more as a letter of intent or a working document that leads to more specific negotiations.
Term sheets explain the terms being discussed or offered. All term sheets generally have certain things on them, like the names of the people involved. The assets in question will be explained along with how much it’s selling for. It’s also includes possibilities for a change in assets as well as what the form of payment for the eventual sale will be. Term sheets usually outline an expiration date during which the items discussed need to be agreed upon.
Term sheets explain the basics without going into every little detail about what the eventual contract will be.
Check out this term sheet. If you agree to the terms you see on this sheet, then you let’s make everything way more complicated and draw up a ton more contracts for you to read. Yay!