Heres some advice on term sheets from a panel held at the 2006 NAO conference in toronto:

  • This document is not legally binding. It provides a roadmap or terms of reference for the deal.
  • Don’t fill out a term sheet template, all deals are different and the term sheet should reflect that.
  • Some parts of the term sheet can be binding.
  • Writing a term sheet is a good exercise to go through with the entrepreneur, and will allow you to get to know them.
  • It is much more difficult for the Angel to make changes to the term sheet down the road, know what you want and make sure its in the first term sheet.
  • Spending time on the term sheet now can save you thousands of dollars in legal fees down the road.
  • The term sheet starts setting the stage for the shareholders agreement. You can typically start covering your top 10 points from the shareholders agreement, right here in the term sheet.
  • Be clear with “use of funds”. Entrepreneur may want to pay back his debt or take money out, but this Angel money is “go forward” money for the growth of the company
  • Set a reasonable deadline, so you dont keep spinning your wheels and never complete your term sheet.
  • Find cousel used to working w/ angels, someone who doest just give you a templated letter.
  • Talk to the NT companies clients
  • Check the paper trail on the IP, make sure you own it

The panelists included:

  • W. Daniel Mothersill, NAO President
  • Craig Brown, Fasken Martineau

Some other articles on this topic:

Evan Bartlett :: Oct.06.2006
Angel Investor, Entrepreneur, HowTo, Tips