Devin's Definitions: Term Sheet

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May30

Devin's Definitions: Term Sheet

Know More: Definitions, Private Equity, Venture Capital 2.0, Private Equity

Term Sheet: A Term Sheet is customarily presented by an investor to a company seeking capital as a non-binding outline of the structure of the proposed investment. It typically contains basic deal terms, but not the details.

There are some elements of a term sheet that are typically binding. Frequently, there is a no shop provision that prevents the company from showing the term sheet to other candidate investors.

Once a term sheet is executed, the parties typically act as if it were binding. They all work toward closing a deal that looks and feels like the deal they'd agreed to complete in principle.

During this final stage of funding, the investor's diligence efforts will continue. As a result, material changes to the deal may be required. Such changes should not be presumed to be malicious on the part of the investors. It is important to always remember that no one--no venture capitalist, no private equity group, no lender, no angel--is obligated to invest in a deal ever. It must make sense--especially at closing.

In my experience, the period between executing a term sheet and closing ranges from 30 days to 120 days. A good faith effort by all parties in a deal without problems allows for a close within the 30 days, but that seems to be the exception and not the rule.

related entries

UTC Presentation: 10 Ways to get Money to Chase You Aug 7, 2006
Devin's Definition: Barrier to Entry Jun 22, 2006
LBO Market Heats Up May 3, 2006
Devin's Definitions: Recapitalization Mar 2, 2006
Private Equity Returns and the "J" Curve Feb 21, 2006

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