A term sheet summarises the key commercial terms of an investment before the parties instruct lawyers to draft full legal documents. It is usually non-binding (except for exclusivity and confidentiality clauses). It speeds up the process and aligns expectations before expensive legal work begins.

• Typically non-binding — except exclusivity and confidentiality provisions
• Sets the framework for the full investment agreement
• Valuation: pre-money vs post-money — affects founder dilution significantly
• Liquidation preferences: how investors get paid first on exit
• Anti-dilution: protects investors if future rounds are at lower valuation

Legal reference: British Private Equity and Venture Capital Association (BVCA) standard documents; Companies Act 2006