A term sheet is a non-binding document exchanged between two parties outlining the terms and conditions for a business deal. It is like a letter of intent or a template from which a more legally binding document can be drawn up in the future.
Term sheets are commonly used by Startups as a way to attract investors funding. It can also be used in mergers and acquisitions to mitigate the chances of a misunderstanding in the future.
The contents of a term sheet depends on its purpose. As such, term sheets for mergers and acquisitions will be slightly different from that for investment.
Investment term sheets for instance may contain the company valuations, percentage stakes, investment amount, voting rights, liquidation preference and investor commitment.
A mergers/acquisition term sheet would have information on the initial purchase price offer, preferred payment method and assets included in the deal.