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What Is A Term Sheet?

#termsheet #guide A term sheet is an official but non-legally binding document that outlines the key terms of an investment deal between founders and investors. It covers things like valuation, equity and control, helping both sides align expectations before moving forward with formal legal agreements. Find more about term sheets and other interesting info here: 🌇 https://techround.co.uk/guides/what-i... What's In This Video: 00:00 - Intro 00:22 - A Guide To Term Sheets 01:06 - Is A Term Sheet Like A Contract? 01:52 - Why Are Term Sheets Important For Startups? 02:26 - What's Actually In A Term Sheet? 03:47 - Who Writes A Term Sheet? 04:08 - What Happens After The Term Sheet Is Signed? 04:30 - The Importance Of Term Sheets Video Summary: If you're raising investment for your startup, there's one document that you need to know about: a term sheet. Whether you're in the early stage of your startup growth negotiating with angel investors, or further down the line and looking to lock in a venture capital firm, having a strong understanding of how term sheets work is important. A Guide To Term Sheets A term sheet, put simply, is a non-legally binding agreement that lays out the key terms of an investment deal. Think of it as a summary of terms that helps investors and founders get on the same page before spending time and money on full legal contracts. It lays out important things like a company's valuation, how many shares are being sold, how much they are being sold for, who is on the board and the level of involvement investors can have. Whilst the term sheet isn't legally binding (mostly), it's still treated as an official document. Once signed, it's generally agreed that neither party can go back and change key terms. If they do, it's seen as a big breach of trust and could tear the deal apart. Is A Term Sheet Like A Contract? No, a term sheet is not like a contract - but it's definitely something to take seriously. One of the main differences between a term sheet and a contract is that a term sheet is not legally binding, however, there are some clauses in there that might be legally enforceable. Most, but not all, of the clauses in the term sheet are 'subject to contract', meaning they only become legally binding when written up formally and signed. Think of a term sheet like a pre-contract agreement, you decide what's going in the contract before it's actually drawn up, signed and legally binding. Why Are Term Sheets Important For Startups? For founders, a term sheet isn't just a place to write the details of a deal, it's also a way to talk through the nitty gritty and find out what an investor actually wants. A term sheet can be a great way to get a lot of the discussion out of the way before proceeding with the legal process. It means all questions are worked out upfront and can help speed up the process later down the line. But most importantly, a term sheet shows real commitment from both sides to go ahead with the deal. What's Actually In A Term Sheet? Whilst term sheets can vary slightly, there are a few key elements that most of them have, including: A valuation Equity Sale details Anti-dilution rights Investor involvement Who Writes The Term Sheet? A term sheet is usually written by investors, but founders are able to write the first version. This means you can set the key terms and the tone and work out the finer details later on. Remember, finalising a term sheet is a collaborative process, so it's not about who starts it, but about finishing it together. What Happens After The Term Sheet Is Signed? Once the term sheet is signed, the legal bit commences. Investors will want to dig deeper into your legal, financial and operations data to do their due diligence. Then, the legal documents will be drafted based on the term sheet. Once completed, the money is transferred and the real work begins: helping investors get that return! The Importance Of Term Sheets A term sheet is more than just a piece of paper, it's the start of a long-term partnership between founders and investors. Knowing what goes in it, how legally binding it is and how it might affect your company is important. And whilst technically it isn't legally binding, you should still treat it with the same level of care and attention. Follow Us: LinkedIn:   / techround   X: @TechRoundUK Or visit our official website for all things tech and startups: https://techround.co.uk/