Venture capital heads of terms (term sheets)

A term sheet is a document that outlines the key financial and other terms of a proposed investment. Investors use a term sheet as a basis for drafting the investment documents. With the exception of certain clauses — commonly those dealing with confidentiality, exclusivity and sometimes costs — provisions of a term sheet are not usually intended to be legally binding. In addition to being subject to negotiation of the legal documentation, a term sheet will usually contain certain conditions that need to be met before the investment is completed and these are known as conditions precedent.

If a company seeks to raise venture capital in the UK, the principal documents needed for an investment round are generally a subscription agreement, a shareholders’ or investors’ rights agreement (frequently these are combined into a single subscription and shareholders’ agreement) or an investment agreement and articles of association. The provisions of a term sheet will be included in these documents…

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