How To Craft A Term Sheet?

Question: A partner and I have presented a business opportunity to a private investor. After significant due diligence on both sides, and agreement in principle of terms, the investor has requested for us to present a term sheet. Where do I go from here?

Our Take:  It’s somewhat irregular for the company to issue the term sheet to the investors – usually, it’s the other way around.  That being said, it’s always an advantage to be drafting (called “controlling the paper”).

You are going to need 2 things to get this done properly:

1.  Good lawyers; and

2.  Knowledge of the basic terms.

Regarding the lawyers: you can’t do this yourself.  You need / should / must get competant legal counsel on your side.  Whatever deal you cut, you will have to live with it “forever.”  We can’t stress this enough.  Make sure whomever you get has experience in these types of deals. 

For your own education, Brad and I did an entire series on Term Sheets a while ago and these posts represent just about everything we know and the tricks that some investors try to get by some companies.  Start chronologically, from oldest to newest and we’ll take you through every major provision of a term sheet.

That being said, get a lawyer.