What Do You Do When You Get A Term Sheet?

term sheet

“I believe this term sheet explodes like a pumpkin at 5PM. Here’s my number. Call me before then if you’re interested in accepting my terms,” “Raul”, our potential new investor, said to me.

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I had just spent the last thirty minutes trying to negotiate with Raul. Raul reacted the same way to every suggestion I had. He said, “There is no negotiation on this term sheet.” He had me, and he knew it.

And Raul had tired of me trying to get him to change the deal terms. It was Saturday afternoon at 4:35 PM. We received the “Donald Ventures” term sheet from Raul Friday at 2:15 PM. So from start to finish, we were expected to make a decision in 27 hours.

Our first investor, Gill, gave us four days to agree to his term sheet. The reality is, whether it’s the 27 hours Donald Ventures gave us or the four days Gill gave us, you don’t have much time to make a decision.


There’s a reason investors give you short expiration dates on term sheets.


It should be obvious, but, when an investor gives you a term sheet, they want you to sign the term sheet. And, the one thing investors don’t want you to do is shop the term sheet to another investor. The result can be the investor losing the deal or paying a higher price for the investment.

So, you have to expect that you’re not going to have much time to ruminate over a term sheet. Now, Raul and Donald Ventures behavior, as would prove to be true throughout our relationship, was at the extreme end of normal. Yet, this was 100% on brand for Donald Ventures.

Now, the reality is that, just like any other contract or business document, you can go past the expiration date and keep negotiating. For example, it took us, and this isn’t a misprint, ten months to agree to terms on another term sheet we negotiated later in the company's life.

I’m not saying that you should just delay. I am saying don’t get freaked out if you go a bit beyond the expiration date on the term sheet as long as you’re negotiating in good faith. Just remember, the longer you go beyond the expiration date, the more chance you have of the investor losing interest and the deal going stale.


However, there is something you can do to change the leverage between you and potential investors.


Many times, you can ask a potential investor for a few more days of time, and they will be happy to give you extra time. Donald Ventures was clearly not one of those investors.

The surefire way to give yourself more time to review the term sheets you get, and, more importantly, negotiate a better deal, is to get term sheets from multiple investors at once. Now, the question is how do you do that?

Gauge the interest level you’re receiving from potential investors as you start meeting investors. If the interest level is high, then you can set a date for when you will receive offers.

So, let’s say you tell investors we’re going to accept term sheets until Friday the 27th. Magically, you’ll get the term sheets you’re going to get right on the 27th.

Now, you have the ability to review the various offers you’ve received at the same time. I’ve worked with several CEOs that have successfully executed this strategy.

The bottom line is it works. However, it only works if you have an investable company.


You’ll want to have your team of advisors on standby when you’re expecting to get a term sheet.


Successfully managing a fundraising process is just like closing a big deal. It’s all about your preparation.

You want to do the planning before you start raising money. You want your data room set up in advance. And you want your advisory team set up in advance too.

Your advisory team might consist of an external advisor that you can trust. Maybe it’s one of your co-founders. Or perhaps, it’s one of your board members.

Make your team of advisors is on standby when you expect to receive term sheets. Then you can move quickly.

Moving quickly allows you to be respectful of your new investors. Moving quickly also lets you react quickly just in case you have to negotiate with someone like Raul and Donald Ventures.


You need to be working with a good startup attorney before you get a term sheet.


Arguably, the most important member of your advisory team is your attorney. You may think you can negotiate a term sheet on your own. I think this is a very bad idea.

There are many terms that are important beyond just the valuation.  For example, liquidation preferences is a term you need to understand really well.  Simply put, a great startup attorney will keep you out of trouble.

The good news in my case was, despite all the time pressure Raul put on us, there were no crazy terms Donald Ventures added to the term sheet. However, it sure did ease my fears to hear Marcia, our great attorney, tell me that the term sheet was clean.

So, yeah, there are investors that will give 24 hours to reply to a term sheet. And, as you can see, many times you can negotiate for more time. The best thing you can do is be prepared before you start raising money.


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