Module 3 · Chapter 6

The Term Sheet and the Document Set

A term sheet records the deal on two pages before anyone drafts. Only three of its lines bind, yet one agreed number in the rest decided how the earlier money turned into shares.

≈ 12 min read 8-question test

In this chapter

Which three lines of a term sheet bind, and why the rest still matters
Why the share count behind a valuation cap is agreed, not calculated
Where each line of the term sheet ends up in the long documents

6.1The term sheet in one paragraph

A term sheet is a short summary of the deal, signed before anyone drafts the long documents. On the sale of a company the same paper is called heads of terms. It shows cheaply whether there is a deal at all, before the lawyers start drafting. Solaris, Elena Marsh and Meridian signed their term sheet on 8 March 2022.

Key point

A term sheet comes early, so it is short and mostly not binding. Only three lines bind: exclusivity, costs and confidentiality. They protect the negotiation, not the deal.

Also in this chapter

The three lines that bind
Why a promise to negotiate in good faith does not bind
Why both sides keep to a paper that does not bind
The four numbers to find first
Why the Cap Base is agreed, not calculated
Where each line of the term sheet ends up
Why exclusivity lasted eight weeks
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