Question: When does my startup need a term sheet?
Answer:A Term Sheet is a document that sets out the key terms and mechanics of a proposal for an investment. A Term Sheet can be binding or non-binding. However, it is more common for it to be non-binding, meaning it is not legally enforceable.
While there is no legal requirement for Term Sheets, it is highly useful to have when capital raising. It assists parties in focusing on key commercial terms and mechanics of the investment. This allows any negotiations regarding these terms to take place before finalising the binding capital raising documents.
It is common to use Term Sheets for direct equity investments and increasingly, also for investments using Convertible Notes and SAFEs.
