What is a Term Sheet?
A term sheet outlines the basic terms and conditions of an investment opportunity and is a non-binding agreement that serves as a starting point for more detailed agreements – like a commitment letter, definitive agreement (share purchase agreement), or subscription agreement. Term sheets are often produced by investment bankersInvestment Banking Career PathInvestment banking career guide – plan your IB career path. Learn about investment banking salaries, how to get hired, and what to do after a career in IB. The investment banking division (IBD) helps governments, corporations, and institutions raise capital and complete mergers and acquisitions (M&A). on behalf of corporate issuersCorporate InformationLegal corporate information about Corporate Finance Institute (CFI). This page contains important legal information about CFI including registered address, tax number, business number, certificate of incorporation, company name, trademarks, legal counsel and accountant.. Download our free Term Sheet Template.
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Term Sheet Template – Example
Note: This term sheet is only for educational purposes and should not be used for any other purpose.
Issuer: [Name] (the “Corporation”)
Nature of the Offering: [Brokered or non-brokered] [private placement] (the “Offering”) of [Common Shares].
Type of Security: [Common Shares]
Offering Size: [Up to $50 million]
Issue Price: $[10.00] per [Share] (the “Issue Price”).
Commission: [6.0]%
Capitalization: Approximately $[60,000,000]. Set forth as “Exhibit [A]”.
Dividends: [Describe the dividend policy.]
Preferential Liquidation Rights: [Describe any liquidation preferences.]
Definition of Liquidation Event: [Include definition from legal counsel.]
Conversion Rights: [Describe, if applicable.]
Anti-Dilution: [For example: The Shares shall have certain customary anti-dilution protection for any share issuances at prices less than the Issue Price based on a weighted average formula, and subject to standard exceptions.]
Voting Rights: [Describe the voting rights.]
Use of Proceeds: [The proceeds from the Offering shall be primarily used for general corporate and working capital purposes.]
Closing Conditions: [Closing of the Offering shall be conditional upon the completion of satisfactory due diligence, the execution of requisite definitive agreements for completion of the Offering, receipt of all requisite corporate approvals and third party consents for the Offering. Etc.]
Agent: [Generic Capital Corp.]
Closing Date: [Date]
Note: This term sheet is only for educational purposes and should not be used for any other purpose.
Documents in Private Capital Raising Transactions
Wondering where the term sheet fits in the overall process of raising capital for private companies?
Here is a list of all the main documents in private capital raising:
- Teaser / 1-Pager
- Non-Disclosure Agreement (NDA)
- Management Presentation
- Term Sheet
- Offering Memorandum
- Subscription Agreement
Typically, the investment bankers or advisors on the transaction will send people a Teaser or single-page marketing document outlining the investment opportunity. If investors are interested, they will sign an NDA and receive more detailed information such as the management presentation, an offering memorandum, and a Term Sheet. The final stage will be a Subscription Agreement.
More resources
Knowing how to build a term sheet is an important investment banking skill-set.
In order to prepare for a career in investment banking, corporate development, or private equity you may find these resources helpful:
- What is Investment bankingInvestment BankingInvestment banking is the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. Investment banks act as intermediaries
- Why Investment bankingWhy Investment Banking?Almost every investment banking interviewer will ask the question: why investment banking? I want to work in investment banking because it’s the fastest way to learn financial modeling, valuation, Excel, and understand the nature of large corporate transactions. I’m aware the job has a strict hierarchy, very long hours
- Valuation techniquesValuation MethodsWhen valuing a company as a going concern there are three main valuation methods used: DCF analysis, comparable companies, and precedent transactions
- Types of financial modelsTypes of Financial ModelsThe most common types of financial models include: 3 statement model, DCF model, M&A model, LBO model, budget model. Discover the top 10 types
To find out more check out our interactive Career Map.
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