Term sheet unlocked
Unpacking the Cherry term sheet and the thinking behind it
As early-stage investors, we are usually the first institutional backer of top companies. In that capacity, we often speak and, ultimately, team up with founders who are dealing with many “business firsts”: first cap table, first hires, first launches, and more. Today, let’s focus on another of these firsts: the term sheet.
Term sheets are non-binding agreements that set out the various — well — terms of an investment. You will sometimes see a term sheet referred to as a “letter of intent”, which highlights the fact that these documents, unlike the long-form financing agreements that follow them, largely do not bind their signatories. That being said, the reality in our industry is very much shaped by the normative power of the factual: out of concern for their reputations as good citizens, no reputable VC will first agree to a certain valuation in a term sheet, only to try to renegotiate it later. That is an important point for founders to remember should they ever encounter a line of argument to the tune of “markets have changed, let’s lower the valuation here”.
We like to think of the term sheet as forming part of our CV, which we use to pitch Cherry to prospective portfolio companies and their founders. Much like a good CV, we limit the term sheet to one page in length. That runs contrary to the approach of most other funds. Similarly, little love is lost between a one-pager and most lawyers out there, who usually argue for more detail. Here is a point to keep in mind though: while your signature on this document will be the first formal step you take towards establishing a relationship with us (or another investor), it will neither be the last nor the most important.
Ultimately, the long-form financing agreements will govern the legal elements of our relationship with you, rendering the term sheet irrelevant from a certain point onwards. So: instead of using a term sheet that is almost as long as the contract it precedes, we use a document that sets the tone for — not sets in stone — the provisions that will ultimately find their way into the financing agreements.
With that, we have decided to unlock our term sheet for all founders. In an effort to be fully transparent, we wanted to do more than just make it accessible to a wide audience, though. So we have included some explanatory notes to help you better understand the thinking behind the term sheet’s various clauses and the impact they can have on your journey to building a world-class business.
Without further ado, our term sheet can be viewed 👉 here 👈 with annotations. We’ve also included a pdf below.
