A non-binding document outlining the key terms of an investment — the starting point for negotiating a funding round.
A term sheet is a short document summarizing the key terms of a proposed investment. It covers the most important deal points: how much is being invested, at what valuation, what rights investors receive (board seats, protective provisions, anti-dilution), and any other conditions. Term sheets are typically non-binding — they express intent but don't obligate either side. The binding documents come later.
The purpose of a term sheet is to reach agreement on the major points before spending money on detailed legal documentation. If the parties can't agree on the term sheet, no one wastes time and money drafting full legal documents. Once the term sheet is signed, it signals that both parties are committed to moving forward and typically (but not always) includes a no-shop provision requiring the company not to solicit other investors for a period.
Reading a term sheet carefully — and understanding what each provision actually means in practice — is critical. Anti-dilution provisions, liquidation preferences, participation rights, and board composition can all significantly affect founder outcomes. Working with a startup attorney who can explain the implications, not just the definitions, is worth the cost.