Disclaimer: This guide is for informational purposes only, and is not a substitute for professional legal advice. Reading this guide doesn't make me your lawyer, and it's critical for you to hire a good one. You should not, under any circumstances, try to draft or negotiate a term sheet without the help of an experienced attorney.
A term sheet is a legal document that lays out the basic business points of a financing, including things like the amount of money raised, the valuation of the Company, and how much control investors will get over the company. The term sheet is the starting point (and sometimes the ending point) for negotiations between a company and investors.
This guide deals with typical term sheets offered as part of equity financings by angel investors or venture capital firms, and gives background on the major provisions so you can understand what's being offered and save time when you're working with your lawyer. In a typical VC or angel financing, the investors will take preferred stock in the company with special rights, in exchange for providing funding to the company.
So, what do you do when you get a term sheet?