A term sheet is the short document that summarizes the terms of an investment before drafting the final contracts: amount, valuation and investor rights. As a general rule it does not obligate closing the transaction, although some of its clauses are binding. It organizes the negotiation prior to a round or a securities issuance.
What is a term sheet and what is it for
The term sheet, or sheet of terms, condenses the economic and governance skeleton of the deal into a few pages. It usually sets out the valuation, the amount, the type of instrument (shares, convertible loan, bond), the investor rights and the conditions for closing. Its purpose is to align expectations before spending time and money on due diligence and contracts.
The usual economic blocks include the valuation, expected dilution, the treatment of talent through options and, with a professional investor, liquidation preferences and anti-dilution described in principle. The process blocks set the schedule, exclusivity and who pays what.
In practice you will see different names for similar documents: letter of intent, LOI or MOU. The label matters little; the content and the binding nature of each block matter a lot. In a dispute, what was agreed is examined, not the title of the document.
For the issuer it is also a process tool. A signed term sheet marks the transition from conversations to the transaction and starts the deadlines. Treat it with the same rigor as a contract: what you accept here will be costly to renegotiate later.
What is binding and what is not
The distinction depends on the wording of each document, but the usual split follows a recognizable pattern.
| Term sheet block | Typical status |
|---|---|
| Valuation, amount and structure | Non-binding: expresses an intention subject to due diligence and definitive contracts. |
| Investor rights (board seat, vetoes, preferences) | Non-binding until they are included in the investment agreement and the shareholders' agreement. |
| Exclusivity (no-shop) | Binding: prevents negotiating with other investors during the agreed period. |
| Confidentiality | Binding. |
| Transaction expenses | Binding if it is agreed who bears each cost. |
| Governing law and jurisdiction | Binding. |
An additional nuance: breaking off advanced negotiations in bad faith can create liability, even without a signed contract. The exact legal characterization depends on each case. Ask for legal review before signing, not after.
Its role before a round or an issuance
The usual sequence has four steps: term sheet, due diligence, definitive contracts (investment agreement and shareholders' agreement) and execution. In a classic capital increase, execution is the deed and its registration. In a tokenized issuance, the securities are registered in a registry based on distributed ledger technology managed by an ERIR (entity responsible for the registration and recording, the registry's digital notary), under Spanish regulations (art. 8, Ley 6/2023; RD 814/2023).
The term sheet matters there more than it seems. The terms you sign (price, rights, transfer restrictions) are the ones later documented in the issuance. If the issuance is tokenized, some of those restrictions can be reflected as registry rules. An ambiguous term sheet produces an ambiguous issuance.
The issuer also uses it to align its side of the table. Board, current shareholders and advisors must validate the terms before signing, not during due diligence, when changing course already costs money.
Criterion for the issuer
Before signing, review four points. Exclusivity with a short term and an express expiry date. Capped expenses with a maximum figure. Specific and verifiable conditions precedent, not generic ones. And consistency between the term sheet and the shareholders' agreement that will come later. Also compare the terms with usual market ranges: what falls outside the range is better negotiated at the beginning, when changing investor is still cheap. If the transaction points to a securities issuance, the next step is described in how to issue a security token in Spain.
Related: tag-along and drag-along rights.
Do you have a term sheet on the table and are considering tokenizing the issuance? Take the issuance assessment (2 min) or request a proposal. If you prefer to start by reading, download the 2026 guide.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
Is a term sheet binding?
As a general rule, no. The valuation, amount and investor rights express an intention subject to due diligence and definitive contracts. But some clauses are usually agreed as binding: exclusivity, confidentiality, allocation of expenses and governing law. The exact nature depends on the wording of each document.
What does a term sheet contain?
The essential elements of the investment: company valuation, amount, type of instrument, investor's economic and political rights, conditions to close the transaction and process clauses such as exclusivity, confidentiality and expenses. All in a few pages, as a basis for later drafting the investment agreement and the shareholders' agreement.
What role does the term sheet play in a tokenized issuance?
The same as in a classic round, with an added consequence. The signed terms are transferred to the issuance documentation and, where applicable, to the rules of the registry managed by the ERIR under Ley 6/2023. The agreed transfer restrictions can be reflected in that registry, so it is advisable to define them precisely from the outset.
