Definition - What does Term Sheet mean?
A term sheet is a bulleted list, prepared by any of the proposing parties, enumerating some of the features as well as the terms and conditions of a contemplated business agreement. The terms and conditions contained in this document are not binding to any of the parties, as they are subject to modification through further negotiations before the final agreement is actually prepared and signed.
A term sheet is an important document because it is an essential step to signing the final business agreement. It contains a list of indicative terms and conditions; displays the intentions of entering into a funding or financing arrangement; and establishes relationships between investors, venture capital providers, start-ups, and other firms. Ultimately, it reduces the time required to negotiate a business agreement.
Divestopedia explains Term Sheet
Term sheets act as important reference documents for drafting final funding agreements and business acquisitions. They contain bullet point lists of key features as well as intended terms and conditions, which are subject to further scrutiny and modification before a final draft purchase and sale agreement is constructed.
A term sheet is fairly similar to a letter of intent from the proposer of a business agreement such as a business acquisition, private equity recapitalization, or refinancing in a new or a preexisting venture that is initiated by an investor, entrepreneur, or an intermediary agent.
The different categories of term sheets have varying structures and features. A funding-related term sheet, for example, may contain the following:
- Proposed timing and process
Conditions to closing
- Confidentiality, exclusivity and other key terms and conditions, if applicable
Term sheets are non-binding and merely act as a comprehensive agenda for further negotiations and a template for drafting the actual agreement.