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Author: Zhitang

Auditor: Uncle CFO

Proofreading: Xiao Du

Source: Official Account [Insight into New Forces]

The Term Sheet (TS) is a crucial link in the financing process of an enterprise, which means that the investor and the enterprise have reached a preliminary cooperation intention. However, due to the complexity of the financing process and information asymmetry, there are often many traps hidden in the TS. So, how can the financing party discover and avoid the traps in the TS?

1. Clarify the nature and binding force of TS

First of all, the financing party needs to clarify the nature and binding force of TS. TS is not a final legal document. Although it contains key terms such as valuation, investment amount, and equity structure, most of its contents are not legally binding and are only morally binding.In the investment and financing circles, TS is regarded as a kind of "gentleman's agreement" with moral binding force. That is to say, even if TS is signed, investors have no legal obligation to invest in the enterprise, and only bear the moral responsibility of the contract.Of course, investors will also be very cautious in signing investment terms lists based on their own brand and reputation, and will not breach contracts easily.