The Term Sheet Basics Every Entrepreneur Should

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The term sheet is an extremely important document for entrepreneurs. Your entire life’s work is basically in trouble if your term sheet doesn’t reflect your true intentions for your company. 

 

Unfortunately crafting term sheets is not a subject in school that you could learn. You basically have to wing it when writing one of these important documents. So if you’re thinking of or already in the process of onboarding investors, it may be time to learn a thing or two about how to craft a great term sheet.

 

First and foremost, it’s always wise to raise as much capital on your own as possible so you wouldn’t have to give up much equity to potential investors. This effectively betters your position on the upside potential while minimizing your exposure on the downside possibilities. 

 

It’s also wise to look at the peripherals that doesn’t always share in the limelight of equity negotiations. Option pools, liquidation participation, dividends, and controlling rights all look like fine prints when you’re talking about large sums of money upfront for your business. But, if you don’t watch out for all of those, you could end up losing your venture at the drop of a hat.

 

It’s also important to note that term sheets aren’t binding until the lawyers have drafted up the official papers and the pertinent documents are signed. This means that even if you have agreed to terms with a potential investor it’s still not safe to count your eggs before they’ve all hatched. Some investors may still change their minds and so could you.

 

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