Understanding a Term Sheet
A term sheet is a concise document that records the principal commercial points of a proposed transaction before the parties prepare detailed legal agreements. It is commonly used for startup investments, acquisitions, loans, joint ventures, and other negotiated arrangements. A good term sheet helps both sides identify important financial and control issues early. Typical terms include the amount invested, company valuation, ownership percentage, security type, board representation, voting rights, liquidation preference, information rights, and conditions that must be satisfied before closing. Although many provisions are often described as non-binding, confidentiality, exclusivity, expenses, and governing-law provisions may be intended to have legal effect. The wording should therefore be reviewed carefully.
How the Generator Helps
This generator organizes the deal into practical sections and calculates basic valuation figures. Enter the investment amount and pre-money valuation to estimate post-money valuation and the investor’s ownership percentage. You can then add preferred-share terms, convertible-note economics, founder vesting, governance rights, investor protections, closing conditions, and custom clauses. The live preview presents these choices in a readable term-sheet format. CSV export is useful for record keeping or spreadsheet analysis, while PDF export creates a shareable draft for internal discussion. Users can also print or copy the generated text.
Review Before Signing
A generated term sheet should be treated as a starting point rather than a final legal document. Commercial language may have different consequences across jurisdictions and transaction types. For example, anti-dilution provisions can affect future ownership, liquidation preferences can change exit proceeds, and board rights can influence control of the company. Convertible securities may also require careful tax, securities, and corporate-law analysis. Before relying on a term sheet, confirm all numbers, deadlines, names, and defined rights. Parties should obtain advice from qualified legal, accounting, tax, and financial professionals when appropriate.
Common Term Sheet Data
| Term | Purpose | Typical Example |
|---|---|---|
| Pre-money valuation | Values the company before new investment | $4,000,000 |
| Investment amount | States new capital being invested | $1,000,000 |
| Post-money valuation | Pre-money plus new investment | $5,000,000 |
| Investor ownership | Shows estimated post-closing percentage | 20% |
| Liquidation preference | Sets priority on an exit | 1x non-participating |
| Founder vesting | Links ownership to continued service | 48 months with 12-month cliff |
Frequently Asked Questions
1. Is a term sheet legally binding?
Many term sheets are primarily non-binding, but specific clauses such as confidentiality, exclusivity, expenses, or governing law may be binding. The actual effect depends on the wording and applicable law.
2. What is pre-money valuation?
Pre-money valuation is the agreed value of a company immediately before a new investment is added.
3. How is investor ownership estimated?
A common simplified calculation divides the investment amount by the post-money valuation and multiplies the result by 100.
4. What is a liquidation preference?
It determines how certain investors may receive proceeds before common shareholders during a sale, liquidation, or similar exit event.
5. Can I use this generator for a convertible note?
Yes. The form includes valuation cap, discount rate, interest rate, maturity date, and qualified-financing threshold fields.
6. Why include founder vesting?
Founder vesting can align long-term incentives by making continued ownership dependent on service over an agreed period.
7. Should a lawyer review the generated term sheet?
Yes, especially for a real transaction. Legal, tax, regulatory, and financial consequences can differ materially by jurisdiction and deal structure.