Understanding the VC Deal
Anatomy of a Term Sheet
Jason D. Gabbard, Founding Partner
Entrepreneurs and financiers must understand that venture capital deals are complicated, dynamic and hugely important to the life cycle of a business in that they scribe a strategic circumference around the company in terms of its current and future financing opportunities.
Step one in most VC and angel deals is the term sheet. Term sheets really run the gamut in terms of both content and style. One of my early mentors at Cravath always told me that a term sheet is “nothing but an agreement to agree, and therefore worth about as much as the paper on which it’s written.” I tend to agree and for that reason do not get too worked up about term sheets. 50 years ago “term sheets’ were scratched out on dirty napkins over cigars and bourbon. The premise of a highly detailed and negotiated term sheet is that it saves work (and hard feelings) on the back-end when parties turn to definitive documentation. In the end, an entrepreneur will probably find they get exercised, or not, about the term sheet to the extent the capital provider does.
Whether your term sheet is closer to a whisky-soaked napkin with notes or a $25,000 Cravath term sheet, set forth below are many of the important metrics about which you should be thinking when it’s time to think about a term sheet.