The Term Sheet?s Role in Raising Venture Capital

Entrepreneurs and companies who are seeking venture capital often negotiate with one or more venture capital firms on a number of important issues. These issues include the amount of capital to be raised, the investment terms, etc. The document which summarizes these terms is known as a "term sheet."

The term sheet is similar to a letter of intent, that is, it is a nonbinding summary of the key points of the transaction. These points are later covered in detail in the Stock Purchase Agreement and related agreements signed at the time of execution of the transaction.

The value of the abbreviated term sheet format is that it speeds up the process of consummating a transaction. Specifically, it allows the parties to agree on the general terms of the transaction rather than having to debate less important details. In addition, because it is not binding, it allows the parties to take their discussions to the next level without the danger of committing too much. Note, however, that some parts of a term sheet may be binding. Typically the binding aspects only refer to confidentiality and disclosure issues.

Venture capital firms, and not the companies seeking capital, typically prepare the term sheet to include the terms under which they are willing to invest their capital. Alternatively, when seeking capital from angel investors, firms typically create their own term sheets for the angels to review. This fact tells a bit about the balance of power in an investment transaction. Venture capital firms are often more sophisticated and have more power than the companies seeking capital. Alternatively, angel investors are typically less sophisticated and have less power, and are more prone to consider the investment terms as laid out by the company seeking capital.

Getting to a term sheet is a key milestone in the capital raising process. Although not all term sheets result in a transaction, the term sheet shows that both parties are legitimately interested in executing a transaction. It is then up to the investor and company to agree upon the details.

Since its inception, Growthink Business Plans has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share. Growthink has become the firm of choice for venture capital firms, angel investors, corporations and entrepreneurs in the know.

For more information please visit http://www.growthink.com or download our free Business Plan Guide.

---

Oil Change Guys History; Part III

Studying the history of franchise companies is interesting is watching... Read More

Could a Non-Profit Structure Be Right for Your Business?

If you have a business idea, or an idea for... Read More

Confidence = Preparation + Courage

It always amazes me when I see someone on television... Read More

10 Ways Entrepreneurs Shoot Themselves In The Foot

Entrepreneurs and their businesses have a tendency to ambush themselves... Read More

What Kind of Business Should I Start?

It's not uncommon to reach your 30s, 40s or even... Read More

The Entrepreneurs Dilemma

In business, you plan to protect your inventory, your unique... Read More

Creativity & Entrepreneurship: The Secret to Discovering Your Purpose in Life!©

Hello Creative Entrepreneurs!In the second course on Creativity & Entrepreneurship... Read More

Focus is the Key to a Successful Startup

The definition of a startup means you have very few... Read More

Why eBay Is A Smart Choice For Entrepreneurs

Attention entrepreneurs: If you think the search for the ultimate... Read More

Executive Suites - A Way To Save Cash

Cash is one of the most important resources to a... Read More

Face The Fear, Ladies

Okay, I'll begin by telling you that I've been divorced... Read More

How to Become a Successful Entrepreneur on the Web

Becoming a successful entrepreneur in the online world is no... Read More

Entrepreneurship Story; Over Regulation in Franchising Final Chapter

Sally and Jim have launched their automotive franchise business and... Read More

Judging Entrepreneurial Ideas

Most entrepreneurs constantly come up with new ideas. Whether they... Read More

Designing a Comprehensive Franchise Company Computer System

One of the most important management tools a franchised company... Read More

The Perfect Little Coffee Shop: Are You Afraid of Failure? Are You Letting that Failure Cripple You

Ah, coffee, the drink of choice when I want to... Read More

History of Enterprise Car Rentals

So few really understand the drives and motivations of entrepreneurs.... Read More

Are You Sure You Want To Start Your Own Business? Part Two of a Series

Why, exactly, do you want to go into business for... Read More

Find Me the Expert on This!

Many people who set up as consultants never make more... Read More

Great Tips Of Choosing An Office

You have decided to strike it out on your own... Read More

5 Habits Of Successful Entrepreneurs

Habits get a bum rap. When you think about your... Read More

Good Questions, good Answers; Bad Questions, Bad Replies

I'm convinced that asking the right questions is one of... Read More

Be An Entrepreneurial Artist: Paint A Picture, then Commit It to Canvas

James had an original concept and he needed an investor.... Read More

Do You Have What It Takes?

I think it's fair to say that not everyone is... Read More

The Cockroach Test

Let me ask you a question? Imagine I would offer... Read More

The Business and Life You Want to Build

In the early days of my first consulting business, I... Read More

What Qualities Do Franchisors Need?

When I got into business I wanted to build a... Read More

Entrepreneurs Just Get Better With Age

Q: I'm thinking about starting a business after I retire... Read More

Double Your Income Automatically

It is a common known fact that it is far... Read More

How To Find Hot Online Business Ideas

Would you like to find the key that unlocks the... Read More

Youve Found Your Guru, Now What?

In my last article, "Follow That Guru", I told you... Read More

Securing Second and Third-round Venture Capital Financing

Widget sales are booming ? the competition is scrambling, demand... Read More

The Lonely Hat: A Marketing Parable

Jones was a typical entrepreneur who worked long hours and... Read More