“A term sheet is a bullet-point document outlining the material terms and conditions of a business agreement. After a Term Sheet has been “executed”, it guides legal counsel in the preparation of a proposed “final agreement”. It then guides, but is not necessarily binding, as the signatories negotiate, usually with legal counsel, the final terms of their agreement.”Wikipedia
A term sheet is a document that begins the process and forms the basis of your engagement with the venture capitalist. It sets out the “terms” on which the investor will invest in your business,the obligation,rights and sometimes the responsibilities of both parties involved.
If you get to a stage where the VC gives you a term sheet,it signifies expression of interest in the idea you presenting on the table for funding. The VC will lay out the terms of the investment. Term sheets usually have an expiry date, i.e., if you do not accept the terms by a certain date, the terms of the engagement will no longer be valid.
Startup 125: Term Sheet – Liquidation Preferences
Before you sign the term sheet,read this