Term sheet

In practice

The term sheet is short and yet decides almost everything. What it says is rarely renegotiated later. Valuation is not the only issue. Liquidation preference, anti-dilution protection, veto rights and vesting are often just as important. A simple preference without double participation in the proceeds (‘1x non-participating’) is regarded as fair. Legally, the term sheet is usually non-binding, except for confidentiality, exclusivity and the allocation of costs. But non-binding does not mean without consequences. Anyone who promises exclusivity may not talk to others during that period. And under German law, anyone who breaches pre-contractual duties when breaking off negotiations can be liable for the other side’s wasted expenditure. The founder community is also well connected. Anyone who walks away from a signed term sheet without good reason quickly gets a bad name.