Investing isn’t as easy as it sounds. You’re not just going to lend your money to people and let them grow it for you. No, that’s not how it works. In investing, you need to undergo a thorough process. Yes, that involves quite a lot of paperwork, such preparing a contract. But, the first document you need to prepare before you can invest is a term sheet. Such a document is what you’ll need if you want to invest in a business. So, if you’re planning to strike a profitable investment, start by using our term sheet sample docs below.
Term Sheet Template
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Term Sheet Template Sample
What Is a Term Sheet?
A term sheet is a document that states the terms and conditions of an upcoming investment. It sounds like it’s a contract, but it isn’t because it’s a nonbinding agreement. In a sense, a term sheet functions as a draft for developing a more sophisticated, legally binding contract or agreement. That said, it can help two parties involved in an investment transaction to structure the best deal—one that spells a win-win outcome—before making it official.
Although a term sheet is a nonbinding document, formulating it is a crucial step in making investment deals. It ensures that both parties agree with the regulations that they’ll soon stipulate in the binding document.
There is also a term sheet for services. That kind of term sheet doesn’t focus on investments. They focus on terms and conditions for employment and contractual jobs. And there’s also a loan term sheet. As its name implies, it focuses on regulations in borrowing money through loans. And it’s not about investments as well.
Who Makes a Term Sheet?
The party responsible for making a term sheet is the investor. That’s because the investor will be the one presenting a proposal to invest in the business. His or her investment could be an equity investment, a venture capital, or an angel investment. On the term sheet, the investor will emphasize how he or she can help in financing the business. That way, he or she can convince the other party of the investment’s viability.
However, the other party—the business owner and the recipient of the investment—can have a say in fleshing out the terms and conditions. Investment deals are like business partnerships. And in partnerships, the two parties have equal rights to negotiate an agreement that benefits both of them. As implied earlier, a term sheet can be a draft to form a win-win deal.
But in some instances, the business owner will be the one approaching an investor. In that case, he or she’ll be responsible for making the term sheet.
How to Prepare a Term Sheet
If you’ve been eyeing to invest in a profitable business, go for it by all means. But don’t forget to prepare a term sheet. You need that before you can arrange an official investment contract. Now, preparing a term sheet isn’t like making a simple sheet. There are specific details you shouldn’t overlook. Otherwise, your investment deal might end up not as viable as it should be. So here’s a short guideline we’ve made to help you prepare an effective term sheet.
Emphasize the Type of Investment
Of course, you need to establish right from the get-go what type of investment you’ll do. There’s an equity investment, angel investment, venture capital, short term, and many more. If it’s an angel investment, you’ll need a term sheet template for angel investment for that. You also must state if your investment will include a joint venture agreement. In other words, let the other party know if you’ll become a business partner. If that’s the case, you might be needing a term sheet example partnership doc.
State How Much Money You’ll Invest
It’s important to state your total investment to the other party. That enables them to measure how helpful your money will be to their business. Usually, the bigger the investment, the more attractive it is. But, that’s not always the case. Sometimes, it boils down to what components of the other party’s business your investment will support.
So no matter the scale of your investment, make sure you can explain how your money can help the business’s growth. Don’t focus too much on the return on investment or ROI. That’ll follow once your investment reaches viability. And lastly, see to it that your investment won’t affect your personal budget too much.
Convey What Assets You Want to Get
Investment isn’t just about getting more money. It’s also about acquiring assets in the future. So if acquiring assets or business shares is your motive, makes sure to convey them on the term sheet. Include a section or clause about your acquisition terms. Though, make sure that they’re realistic. And back them up with a convincing proposition that aims to help the other party’s business financially. For this matter, you might want to view the other party’s business plan if possible.
Implement Grounds for Withdrawal
In real estate contracts, both the buyer and the seller can withdraw from the agreement due to certain anomalies. It could be that buyer failed to pay, or the seller didn’t provide the goods or make the property liveable on time. A similar principle applies to investment transactions. In your term sheet, you need to implement grounds to withdraw your investment. That’s to protect you from financial loss if ever the other party doesn’t fulfill their end of the bargain. When that happens, you must take your money away from them immediately.
Are term sheet documents enforceable?
Yes, a term sheet is an enforceable document. However, if a binding contract isn’t supporting it, a party who breaches it will not face lawsuits or sanctions. With that in mind, a term sheet becomes officially enforceable when its terms and conditions are stipulated in a binding contract.
Should I affix my signature on a term sheet?
To establish trust with the other party and make the agreement more meaningful, yes, you should. By affixing your signature, it’s a gesture of commitment to the agreement. However, it would be better if the term sheet becomes legally binding through a contract.
What happens after I sign a term sheet?
After signing a term sheet, lawyers will be finalizing it. And usually, about 2 to 6 weeks, contract signing will take place to bind the term sheet legally.
According to TrendsShare.org, a 15% annual return is considered a decent ROI. As an investor, you should aim for that ROI rate to make your investments fruitful. To achieve that, you need to start by preparing a strategic term sheet that can generate long term profits. So take advantage of our helpful term sheet samples and templates.
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