Term Sheet

If you are getting an investment from a fully functioning venture capital firm there are high chances that they will provide you with the term sheet. However, if you are dealing with an investor or more accurately an angel investor, who isn’t much aware of the functioning of laws, they might ask you as a company to prepare the investment term sheet. It is legally acceptable for any of the parties to draft a term sheet. 

No, a venture capital term sheet is just a basic document that covers the major provisions of StartUp investment. Hence, it is usually not legally binding. However, all other agreements arising from and being entered into after the negotiations from the term sheet are completely binding such as the ShareHolders’ Agreement, or any employment contract – will be legally binding on all its parties.

No, the term sheet is not at all mandatory under the laws of India. However, it works like a planner or a guide which makes the process of completing an investment round very flexible and easy. Hence, it is always advisable to have an investment term sheet before raising any funds from a third-party investor. 

This is completely dependent upon the rounds of negotiations between the business owners and investors. It can be completed in one or two weeks and can last months. A major factor involved is how the interests and conditions of both parties are protected in the term sheet. If you have a term sheet that focuses on safeguarding the rights of all persons involved, the negotiation rounds won’t take much longer. 

Once a Term Sheet is discussed and finalized, the parties enter a valid and legally binding agreement that governs the investment transaction. This legally binding agreement is also known as the SSSHA. Once the SSSHA comes into effect, the term sheet automatically dissolves.