Whether you’ve only recently decided to seek out capital for your business or have already received (or made) your first offer, the term sheet (or “letter of intent”) is an integral part of the process. In this series we’ll look to shed some light on the legal language contained in a financing term sheet by taking a “deep dive” into the most often used terms and how choices made in selecting those terms can affect both the Company and the Investor.
One of the primary times that a client will seek out my advice is when they are faced with reviewing (or drafting) a term sheet for the sale (or purchase) of a company’s stock. For those who have not gone through the process, the notion of a term sheet (a document that lays out the basics of a proposed transaction but not in sufficient detail to actually effect the sale) can seem a little odd or even antiquated. What good is a document that expressly states that it is “non-binding”, after all?
The easiest answer, like many things in the law, is that offering a term sheet before drafting definitive documents is simply the way things are done. But, while true, that answer is not only pat (and somewhat unhelpful), it is also incomplete.