What Is The Term Sheet? As A New Startup Investor, You Need To Know

When you are just getting into venture capital, landing a job is the top priority — and that’s obviously very tough work. Thing is though, once you check that box, that’s when the real work begins.

See, VC is a results-driven business, and the stark reality is that to move up — or even just stay in good standing in this tightly-knit industry — you need to make deals.

The term sheet is an agreement between the investor and startup laying out the basic conditions under which an investment will be made. Inherent to this document is the understanding that more complex, detailed documents will eventually be developed and signed down the road. This is just the first step in that process.

As the VC, you’ve done your due diligence, you like the company, and you’ve made it clear you’re ready to invest.

Likewise, the startup founders are more or less on the same page. They are ready to bring you aboard and give up equity in their company — their baby — in return for your help and capital.

One thing that’s important to keep in mind is that term sheets are non-binding.

Brock Blake, CEO of Lendio, the largest small business loan marketplace in the U.S., wrote in Forbes that he would guess about 90 percent of signed term sheets turn into funded goals, while the remaining 10 percent fall apart.

Still, he also did not downplay the achievement of reaching the term sheet stage either.

A term sheet is an enormous milestone for an entrepreneur in the fundraising process,” Blake writes. “Once you have a term sheet, it prompts other potential investors to accelerate their evaluation, and it sets in motion the next stages of closing the deal, including deep due diligence and legal review… The negotiated and signed term sheet represents an exciting day for the investor as well. Once both parties have executed the term sheet, the investor knows they are the preferred investment group and can worry less about courting and more about due diligence, legal, and sealing the deal.

While all that sounds rather momentous, the actual, physical term sheet itself is simply a small document, typically no more than a handful of pages long.

Site Visitors!

TaxFillingIndia: Legal Information for Indian businesses

Since 2011, ​TaxFillingIndia has been a one-stop solution for any business or entrepreneur looking for a lawyer, chartered accountant or company secretary. We have been particularly instrumental in ensuring startups are fully compliant with India's labyrinthine legal system. Over the past five years, the depth of our offerings, connection with reliable professionals, affordable prices and customer satisfaction has made us the largest online facilitator of legal services in India. We have already served over 120,000 customers and have a steadily growing network of over 1000 professionals from all the major cities (particularly the metros of Mumbai, Bangalore, Chennai, Delhi and Kolkata) on our online platform. In 2016, we launched way of working for legal professionals across India.

Starting a Business

Many founders are confused about what kind of entity to register when they start their business. Should it be a private limited company, limited liability partnership, partnership firm, one person company or a sole proprietorship. Each of these has very specific advantages and disadvantages. There is no one type for all businesses. A private limited company registration, for example, would be a good fit for any venture that will look for funding at a later stage. You can contact TaxFillingIndia for all the advice you need. We assure you of great service at a reasonable price. You can find a company name availability here.

Intellectual Property

In modern business, there is no other asset as valuable as intellectual property, and yet so many startups end up neglecting it. But this is surely not advisable, as trademarks, copyrights and patents ensure that you have sole rights to your creation, be it your brand, your designs or your inventions. At TaxFillingIndia, we are well equipped to handle all your IP requirements. We facilitate trademark applications in just three days, copyright registration for all your software, pictures, audio and video content, and can connect you to patent attorneys to conduct a patent search and file your patent applications. You can find a Trademark availability here.

Government Registrations

In India, you need a license for everything in business. Started a manufacturing business? You need a GST Registration and a Trade License. For a food business, you need an FSSAI license. Have employees? You need a Professional Tax registration and Shops & Establishments Act Registration. If that's not enough, you also need to file GST Returns and Professional Tax Returns.

Legal Documentation

The worst way to approach business is to just get into new partnerships and arenas without examining consequences. By getting a lawyer to draft contracts or agreements with new vendors, employees and investors, you're ensuring that you have all the downsides covered. At TaxFillingIndia, we connect you to lawyers who will deliver complex documents, from shareholders' agreements and founders' agreements to terms of service/privacy policy and non-disclosure agreements, at a reasonable cost in a few days' time. Well-known startups, such as Holachef and Big Basket, have chosen to connect with a lawyer through us for their documentation work.

Mandatory Compliance

It's not enough to have started a private limited company or an LLP. You need to comply with all the requirements of the Ministry of Corporate Affairs and Income Tax Act once you do. You need to inform them of every relevant change you make, whether it is adding a director, removing a partner or increasing authorised share capital. You also need to file annual returns and maintain your accounts. In the case of a private limited company, you even need them audited. At TaxFillingIndia, we facilitate all these services completely online. Which means you can engage a professional on retainer for the year and we'll ensure that all the formalities are completed for you while you focus on your business.

By continuing past this page, you agree to our Terms of Service, Cookie Policy, Privacy Policy, Refund Policy and Content Policies.

Please note that we are a facilitating platform enabling access to reliable professionals. We are not a law firm and do not provide legal services ourselves. The information on this website is for the purpose of knowledge only and should not be relied upon as legal advice or opinion.