Term Sheet

DEFINITION of 'Term Sheet'

A non-binding agreement setting forth the basic terms and conditions under which an investment will be made. A term sheet serves as a template to develop more detailed legal documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is then drawn up.

BREAKING DOWN 'Term Sheet'

A term sheet lays the groundwork for ensuring that the parties involved in a business transaction are in agreement on most major aspects of the deal, thereby precluding the possibility of a misunderstanding. It also ensures that expensive legal charges involved in drawing up a binding agreement or contract are not incurred prematurely.

They generally cover the more important aspects of a deal, without going into every minor detail and contingency covered by a binding contract. For example, a term sheet from a venture capital company that is investing in an early-stage company may contain such details as the amount of investment, the percentage stake sought, anti-dilutive provisions and valuation.

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