A Beginner VC’s Guide to Term Sheets

Term Sheet Fundamentals for a New VC

My apologies for the delay. Had to take the week off, but I’m happy to get back to new posts! In this post, I will cover an introduction to the term sheet, introduce founder-VC negotiation dynamics, and explain the economic and governance aspects of the term sheet.

Intro to The Term Sheet

Fortune has a blog named after it. What is a term sheet? It’s the document that contains all financial and legal negotiations for the transaction. The term sheet is usually produced by the venture firm financing the company. When the investment round has multiple investors, producing the term sheet is normally the responsibility of the lead investor.

After the VC firm presents its initial term sheet to the company’s CEO, the details are ironed out from meetings between the two parties. After the details are agreed upon, the final term sheet is presented to the company’s CEO.

While term sheets are not binding legal documents (they normally include language that states that they aren’t), they are based upon both the VCs and the company founder honoring their word. The reputations of both the VCs and the founders are on the line. The startup and VC space is a small world, and word of unethical business practices does travel.