Use it whether you're raising investment, lending money, buying a business or setting up a partnership, in any country.
Need the basics first? Read What Is a Term Sheet?
Part 1: The six essential terms
These are the terms that make a document a term sheet. If any is missing or unclear, fix it before you send the term sheet.
✅ 1. Parties
✅ 2. The proposed transaction
✅ 3. Legal effect
This is covered in depth in Is a Term Sheet Legally Binding?
✅ 4. Expiry
✅ 5. Governing law and disputes
✅ 6. General terms
Part 2: The six optional terms
These are common, but not essential. Include them when they help, and leave them out when they don't.
| Optional term | Include it when… | Usually binding? |
|---|---|---|
| 💰 Key commercial terms | Price, valuation or payment terms have been agreed | No |
| ✅ Conditions and due diligence | Something must happen before closing, such as checks or approvals | No |
| 📅 Timetable | There are target dates for signing and completion | No |
| 🔒 Exclusivity | The side sending the term sheet needs time to do due diligence | Yes |
| 🤐 Confidentiality | Almost always | Yes |
| 💸 Costs | Almost always, even if it just says each side pays its own | Yes |
Key commercial terms by deal type
Include only the terms that have actually been agreed. Common examples:
- Investment: investment amount, valuation (pre- or post-money), type of shares, board seat, information rights, founder vesting. For SAFEs: valuation cap, discount and MFN.
- Loan: loan amount, interest rate, term, repayment, security and guarantees.
- Acquisition: price, price adjustments, deferred payments or earn-out, warranties, key employees, restrictive covenants.
- Partnership or project: each party's contributions, governance, intellectual property, revenue sharing, term and exit.
Part 3: Mistakes to avoid
| ❌ Mistake | ✅ Fix |
|---|---|
| Trading name used as the party name | Use the full registered legal name |
| "The business" as the subject matter | Say exactly what shares, assets or services are involved |
| No statement of what's binding | Add a clear legal effect clause |
| Binding list doesn't match the clauses included | Update the list whenever you add or remove a binding clause |
| No expiry or long-stop date | Add both, in the right order |
| "Laws of the United States" | Name a state, e.g. "the laws of the State of New York" |
| Courts of one country, law of another | Match law and forum |
| Vague earn-out ("if the business does well") | Use a measurable target and a date |
| Silence on intellectual property in a development project | Say who owns existing and new IP, even at a high level |
| Guessing numbers that haven't been agreed | Leave them out, or mark them "to be agreed" |
For the reasons behind each of these, with examples, see 12 Common Term Sheet Mistakes (and How to Avoid Them).
Part 4: When to get a lawyer involved
A term sheet is short, but some situations need professional advice before you sign:
- you're asked to make the price or completion binding, or to agree a break fee;
- the deal involves security, guarantees or a personal guarantee;
- a party is listed on a stock exchange or regulated;
- the deal may need regulatory, competition or foreign-investment approval;
- personal data, customer lists or employees are being transferred;
- the parties are in different countries and you're unsure about governing law.
Frequently asked questions
What are the most important terms in a term sheet?
The parties, a clear description and structure of the deal, and a statement of what is and isn't binding. Without these, the term sheet can't do its job.
Should a term sheet include the valuation?
If it has been agreed, yes. It's one of the most important commercial terms in an investment. If it hasn't, the term sheet can still cover the essentials and leave valuation for later.
How detailed should a term sheet be?
Detailed enough that nobody is surprised by the final agreements, but no more. If a point needs more than a couple of sentences, it probably belongs in the final agreements.
Can I use one term sheet template for different types of deal?
Yes, if the template separates the essential terms from optional, deal-specific ones. The essentials are the same for every deal; the commercial terms change.
Build your term sheet from this term sheet checklist
Founders Doc's term sheet tool follows this checklist for you. It always includes the six essential terms, lets you choose which optional terms to add, and flags common mistakes, such as a missing state for US or Australian law, before you send it.