The term sheet has a role in raising venture capital

Entrepreneurs and companies who are seeking venture capital often negotiate with one or more venture capital on a number of important issues. These issues include the amount of capital to be raised, the investment terms, etc. The document which summarizes these terms is known as a "term sheet".

The term sheet is similar to a letter of intent, that is, is a non-binding summary of the key points of the transaction. These points are then treated in detail in the stock purchase agreement and related agreements signed at the time of the transaction.

The value of the abbreviated format term paper is that it accelerates the process of consuming a transaction. In particular, it allows the parties to agree on the general terms of the transaction, rather than having to discuss the less important details. Also, why is not binding, it allows the parties to take their discussions to the next level without the danger of committing too much. Note, however, that some parts of a term sheet may be binding. Typically the binding aspects only refer to issues of confidentiality and disclosure.

Venture capital firms, and companies seeking capital, typically prepare the term sheet to include the terms under which they are willing to invest their capital. Alternatively, when you look for capital from angel investors, companies usually create their own term sheets for angels to see. This fact explains a little 'about the balance of power in an investment transaction. Venture capital firms are often more sophisticated and have more power than the companies seeking capital. Alternatively, angel investors are typically less sophisticated and have less power, and are more likely to consider the terms of investment as provided by the companies seeking capital.

Getting to a term sheet is a milestone in the process of raising capital. Although not all the results in terms of sheets of a transaction, the term sheet shows that both parties are legitimately interested in executing a transaction. It is then up to the investor and the company agree on the details....