Caution: Letter of Intent

The idea of this blog entry appeared at the lecture on the content and legal force of term sheets within venture deals given by Greg Gottesman, Managing Director at Madrona Venture Group, that has been investing in the U.S, North-West startups since 1995, at Alliance of Angels, Seattle, on July 17, 2015.

The term "term sheet" can be translated into Russian in several ways: heads of agreement, protocol of intent, letter of intent, etc.

A term sheet is the first document that is signed by a venture company with its future venture investors in each financing round. It contains the two main groups of terms and conditions: those concernig economic aspects of the deal (company valuation, investment amount, quantity of venture company's stock or rights in such stock to be purchased by the investors, liquidation preference upon investor's withdrawal from the project, etc.) and those related to control (procedure of establishing the company's board of directors, procedure of making key decisions by the company's stockholders, veto right, etc.).

The content of a term sheet has been covered pretty well; there are a lot of materials on that topic on the Internet. Nonetheless, the U.S. authors of venture financing publications and practicing venture finanсiers note, as something implied, that a term sheet does not have any binding effect.

However, the question arises: if a term sheet does not have binding effect, then, why its content is paid so much attention?

See the full text of the article (in Russian) here.