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A letter of intent (LOI) is an initial, non-binding agreement between the parties in a proposed business deal. The LOI establishes the aspects of the deal the parties agree on, shows the parties are committed to making a final deal, and clears the way for a later, binding agreement called a definitive agreement.
A term sheet lays out the terms and conditions for investment. Its used to negotiate the final terms, which are then written up in a contract. A good term sheet aligns the interests of the investors and the founders, because thats better for everyone involved (and the company) in the long run.
The main difference between the two is that a term sheet is simply a document that lays out the terms that both parties wish to include, and usually neither party will sign the document. The letter of intent, on the other hand, includes those terms but is singed by both parties involved.
Here are five mistakes to avoid with term sheets during the fundraising process. Your term sheet arrives weeks apart. Not learning common terms and red flags. Not understanding valuation concepts. Not time limiting the No Shop clause. Not getting professional legal advice.
One of the first and most important items on the term sheet is the investment amount. Typically the term sheet specifies the amounts per investor (lead, non-lead).
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When Is Due Diligence Carried Out? The process starts once the term sheet is agreed upon between the startup and the investor. At that point, the investor will send over a venture capital due diligence request list. This will let you know what documents theyll need and what information and access you should provide.
A term sheet is a nonbinding agreement outlining the basic terms and conditions under which an investment will be made. Term sheets are most often associated with start-ups. Entrepreneurs find that this document is crucial to attracting investors, such as venture capitalists (VC) with capital to fund enterprises.
Heres what you should do after receiving a Term Sheet. Consult Your Lawyer Advisors. What: Send the Term Sheet to both your lawyer and your trusted advisors (those with term sheet experience such as existing investors, mentors and experienced founders). Inform Other Potential Investors. Check Investor References.
Usually, a Term Sheet is not a legally binding document and is less complex than other legally binding agreements. A Term Sheet focuses on the more docHub aspects of a deal, without including each minor detail covered in a contract. The more intricate details are included in the longer, legally binding agreements.
Once youve chosen the investors you want to work with and have negotiated and signed their term sheet, its time to move to the next phase: deal finalization.

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