Terms Sheet: Definition, What's Included, What To Look For
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- Avg cost to draft a Term Sheet: $850.00
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What Is a Terms Sheet?
A terms sheet is a nonbinding agreement between yourself as the company owner or representative and an investor that outlines the broader terms and conditions of an investment deal. Parties frequently use it as a template and starting point for the more detailed and legally binding documents that'll come in the future. Once the involved parties agree on the term sheet details, they'll move into the next step of forming the legal documents that facilitate the investment in the company.
Terms sheets are typically associated with startups because it's these companies that most often need more investment dollars to start the business or expand operations, but many companies planning on a merger or acquisition use it too. Having a term sheet actually attracts investors and venture capitalists to your company with the means to contribute financially to assist with growing your business.
It's obvious that investors find it appealing to be a part of a company that they believe will bring them a solid return on their investment for years to come. What's even more enticing is when that company has everything in order and the terms of a potential agreement laid out in a way that's clear and doesn't leave much room for misinterpretation or confusion.
While the term sheet doesn't have to go into every single detail or contingency of a deal, it should include the more important parts so investors can read through it and know exactly what they are getting into. Venture capitalists may have many deals in front of them, so as a business owner, you may find it easier to attract the funds you need when you make the process easy on your investor.
What to Include on a Terms Sheet
If it's time to draw up a terms sheet, it means you're at a place in your company when you could use extra funds. This is usually when you're doing really well and just need some investment dollars to expand operations or keep them going at the level and pace you're used to. Here is what most term sheets should include:
- Identification information: You should share your information as the business owner and the investor's information. This will show exactly who is a part of the terms sheet.
- Valuation: This is how much the company is worth, and something that investors will definitely want to know before investing their money to fund your enterprise. The valuation calculation can also include how many shares of the company have already been distributed and at what cost.
- Investment amount: The investment amount should be laid out clearly, so there is no confusion as to how much you're expecting as an investment.
- Percentage stake: The percentage stake is the percentage the investor will own of the company if the deal goes through. For example, if the percentage stake is 20%, then the investor will own 20% of the company, which could make them a majority shareholder depending on how the other 80% is broken up.
- Time frame: It's standard practice to allow for a certain period of time where the investor can go over the terms sheet and make a formal decision.
- Voting rights: Venture capitalists want to maximize their return on investment potential, so they may ask you as the business owner to give up some part of the voting rights in the company. While this can go any which way depending on the agreement, you may want to outline exactly how much voting rights the investor will have if they provide much-needed funding.
- Other provisions: It's typical to include additional provisions for items such as who is responsible for legal fees, an investor's right to company information and future investments, nondisclosure details, and founders' obligations.
A terms sheet should also clearly state that it is a nonbinding agreement, giving both the entrepreneur and the investor the ability to withdraw before legal paperwork is completed. If you want some additional tips on how to understand your term sheet, head to this article .
What to Be Wary of in a Term Sheet
While it would be ideal to have an uncomplicated investment process, you may come upon an investor who tries to institute a variety of provisions in the term sheet that don't benefit you as the company founder. Here are some things to be on the lookout for:
- Unfair financing: If part of your investor's dollars will serve as a loan for your business expenditures, make sure that the note details aren't so harsh that your company could become bankrupt in an attempt to repay it.
- Large controlling stake: Investors want to have some stake in the company, but some investors may ask for a large stake that would give them the biggest share and, therefore, the controlling portion of your company.
- Limiting terms: There are certain things that an investor may ask of you, but they may also want to limit how much fundraising you can go after in the future. Consider if this is beneficial for your business before agreeing to it in the terms sheet.
Image via Unsplash by officestock
Common Terms Found on a Term Sheet
Term sheets can include a lot of jargon that you may not be familiar with when you're just starting out as a business owner. Here are some common terms and their definitions:
- Valuation: You likely already know what the valuation of your company is, especially if you're at the point of needing investors, but you may see the terms pre-money valuation and post-money valuation listed. The pre-money valuation is the value of the company before you've received the new investment, while the post-money valuation refers to the value of the company that includes investment dollars.
- Drag along clause: This clause allows a major shareholder to require a minority shareholder to follow their lead in business decisions, particularly in the sale of a company.
- Dividends: Dividends are what is paid out to shareholders on a regular basis, usually quarterly, based on the company's profits.
- Pro-rata rights: These rights are given to an investor so they can also be a part of additional funding rounds later on. You may even see pay-to-play provisions that require investors to participate in future investment rounds or pay penalties if they don't.
- No-shop agreement: This agreement limits your relationship with other investors after you sign the term sheet. It's normal to have to wait a certain amount of time after signing the term sheet before starting another fundraising round, but the term sheet should outline an expiration date after which it's okay to seek additional investments.
Here is an article that shares additional term sheet terms to become familiar with.
Although a term sheet is not a binding contract , it's still important to know how they work and why they are beneficial for your business. Remember that without one, or even with one that's limiting and confusing, you'll spend more time, effort, and money in coming to an agreement with your investors.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Meet some of our Terms Sheet Lawyers
Benjamin W.
I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!
"Benjamin was a great communicator. He understood that I was looking to negotiate, not litigate. Very happy with the work. Hiring him for a second project now."
Edward B.
When the pressure mounts and the outcome matters most, Edward L. Blair IV doesn’t just step up—he dominates. As a formidable Florida-based attorney, Mr. Blair commands every case with the unshakable focus of a warrior and the calculated precision of a master strategist. His expertise in drafting pleadings, motions, and contracts transforms legal writing into a sharp-edged instrument—an arsenal of language wielded with power and purpose. Edward L. Blair IV is not just an attorney—he’s a lionhearted force of advocacy. Every case is a mission, and every client is a cause worth fighting for. His strategic legal insight doesn’t just navigate complexity—it crushes confusion, eliminates doubt, and clears the path to victory. Respected by clients and relentless in pursuit of justice, he approaches each legal battle as a personal crusade. When you choose Blair Legal Solutions LLC, you gain more than representation—you gain a relentless ally. Your battle becomes his, and he won’t rest until the job is done.
"Edward was both responsive and highly competent in crafting our Settlement Agreement notification and demand letter. Though I hope I never again need this type of legal support in the future, I would seek his services without reservation and hesitation."
Faryal A.
Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.
"I would 100% use her again. Repsonsive. Did a great job and thankful"
Eric H.
I'm a M&A, start-up, and commercial attorney providing biglaw service on SMB budgets. Basically, I help people spend large amounts of money slightly less terrifyingly. :)
"Don't hesitate with Eric. He immediately made me feel at ease about ability to represent me and to tough contractual matter. His work is outstanding and his responsiveness put me at ease. As a physician and a client, I can certainly say that Eric is the one who gets the job done. Recommend highly"
Chaz G.
As a former corporate attorney at one of the world's premier global law firms and former in-house counsel at Texas Instruments, a Fortune 500 technology leader, I bring big-firm expertise and corporate-level sophistication to entrepreneurs, startups, and small business owners who deserve the same quality legal support as the largest companies in the world. As a lawyer and startup founder with products currently being sold in national retail chains, I've spent my career at the intersection of complex business transactions, corporate law, and policy. I know how deals get done, where contracts go wrong, and how to protect businesses before problems arise. Now, I put that experience to work for founders and business owners who need practical, straightforward legal guidance without the intimidating price tag of a major law firm. Whether you're signing your first vendor contract, structuring a partnership, protecting your intellectual property, or navigating a business dispute, I translate the law into plain language so you can make confident decisions and focus on growing your business. What I bring to the table: - Complex commercial transactions experience at an AmLaw 100 firm - 7+ years as in-house counsel at a Fortune 500 company - Deep understanding of how businesses actually operate day-to-day - Flat-fee, transparent pricing with no billing surprises - Fast turnaround and direct communication If you're building something, I want to help you protect it.
"Chaz was extremely helpful, thorough, and professional. I hired him for a cease and desist letter involving an unauthorized use of my company’s business identity, EIN, and credit. He took the time to review the documents carefully, explain the legal issues in plain English, and help me understand the strengths and challenges of my situation. What stood out most was how organized he was. He prepared a legal analysis memo before our call, walked me through the authority issues, and adjusted his approach after reviewing additional company documents. He was patient, clear, and never made me feel rushed, even though the situation involved several complicated details. The final work product was strong, detailed, and tailored to my specific facts rather than feeling like a generic template. I would definitely recommend Chaz to anyone who needs a knowledgeable attorney who communicates clearly and takes the time to understand the full picture."
Caroline N.
Caroline N.
Caroline K. Nam, Esq. is a solo attorney who provides legal counsel with a management-first mindset, combining legal expertise with proactive policy development. Prior to starting her own practice, Caroline gained extensive legal experience as a litigator defending and advising employers of all sizes, ranging from a single business owner, to a small family-owned winery, and major, nationwide corporations. Caroline also has experience on the plaintiffs' side representing survivors of sexual abuse against school districts and churches. With her unique litigation background and expertise representing both plaintiffs and defendants, Caroline understands that legal compliance is only a piece of the puzzle for business success. She is committed to leading with compassion to provide a personalized, approachable service for each client. Having safeguarded companies against a variety of business and employment disputes, Caroline is focused on preventative risk management, helping owners reduce potential employment litigation that she has defended firsthand in court. Caroline is dedicated to helping entrepreneurs spend less time worried about liability and more time focusing on business growth. Based in Los Angeles County, she provides accessible, actionable legal solutions throughout Southern California. During her free time, Caroline enjoys yoga and serving her Los Angeles community. In 2025, she partnered with NLSLA to provide pro bono legal services to individuals impacted by the Eaton Fire. Currently, she serves on the board of directors of a nonprofit organization based in Los Angeles.
"I had Caroline create a liability waiver for my Sports Fencing Club. She was prompt in completing the task, helpful and courteous in answering my questions, and in every way professional. I would use her services again if required."
April 20, 2026
Fahad J.
Fahad Juneja is a transactional attorney with over 10 years of experience, admitted in California and Texas. His practice covers M&A, commercial contracts, and corporate governance, including drafting and negotiating purchase agreements and related transaction documents, NDAs, collaboration agreements, service agreements, consulting agreements, and other commercial contracts. Fahad began his career in the private equity M&A group of a large law firm (Sidley), then moved in-house to Paramount Pictures, and later advised technology and manufacturing clients at a Bay Area boutique. He now maintains a solo practice, where he supports a primary client and advises fintech and other emerging companies on commercial, corporate, and strategic matters. Fahad's approach emphasizes efficient negotiation, thoughtful drafting, and practical risk allocation. He is available to support M&A transactions, ancillary transaction documents, contract drafting and review, and general corporate matters.
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Transactional
Terms Sheet
Washington
Can you explain the key provisions typically found in a term sheet for a business partnership?
I am in the early stages of negotiating a potential business partnership with another entrepreneur, and we have been advised to create a term sheet to outline the main terms and conditions of our agreement. However, I have limited knowledge about term sheets and would like to understand the key provisions that are typically included in such documents. I want to ensure that our term sheet covers all necessary aspects and protects both parties' interests before we proceed with further negotiations or legal documentation.
Jonathan W.
There are a couple of strategies for drafting term sheets. They can be extremely comprehensive leaving little material to the definitive documents or they can be very high level leaving most of the material terms to the definitive agreement. My preference and I think it often saves on legal costs is to have a very detailed term sheet. The reasons high-level ones are often used is because there is a need to get to a signed term sheet, the parties know each other or there is some other urgency that leads to having a less-than-detailed term sheet. The basic sections in a term sheet are: PART ONE (non-binding provisions) 1. BASIC TRANSACTION. Summarizes structure of transaction. 2. PRICE/ECONOMICS 3. OTHER TERMS. Both parties agree to be honest and straightforward in their warranties and representations. PART TWO. The following are the legally binding and enforceable agreements of the Parties. 1. ACCESS. Both parties shall provide access to any information the other entity may require throughout the transaction. 2. EXCLUSIVE DEALING. Both parties agree to stop looking for a similar entity to partner with. 3. BREAK-UP FEE (only in the M&A context but could be for a business deal to compensate party for other parties breach) 4. CONDUCT OF BUSINESS. Regular business should occur at both entities throughout the transaction. 5. CONFIDENTIALITY. Both entities will keep all materials, conversations and knowledge gained confidential. 6. DISCLOSURE. Both entities will not discuss the proposed transaction with anyone until completed then they will issue a press release together. 7. COSTS. Both entities pay their own professional service fees. 8. CONSENTS. Both entities will follow appropriate internal legal process/approval. 9. ENTIRE AGREEMENT. This document supersedes all previous documents and/or other forms of communication relating to this transaction. 10. GOVERNING LAW. The Binding Provisions will be governed by and construed under the laws of the State of [Washington] without regard to conflicts of laws principles. 11. JURISDICTION: SERVICE OF PROCESS. Defines how legal proceedings will work regarding this document. 12. TERMINATION. States when this document will expire. 13. COUNTERPARTS. Covers how the contract is signed. 14. NO LIABILITY. The past is wiped clean by this document, with respect to historical dealings between the two entities.
Startup
Terms Sheet
California
What are the most important things to look at in a term sheet?
I am expecting to get a few term sheets from investors in the next month. I want to know what I should be looking for.
Ramsey T.
Every term in a term sheet, by definition is important. A term sheet is a summary of the most important parts of a "deal" - a way of getting to and negotiating the hear of the deal before filling in the gaps with boilerplate. Therefore, you should make sure that you understand all of what has been proposed and negotiated in the term sheet - even the provision that don't seem that important - because they wouldn't be in the term sheet if they weren't a key term to one side or the other.
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