Comparison
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Term Sheet vs Letter of Intent (LOI)
Quick Answer
A term sheet outlines the key terms of a venture capital investment, while a letter of intent (LOI) is typically used in M&A to express a buyer's intention to acquire a company — both are largely non-binding but serve different purposes.
What is Term Sheet?
A term sheet is a document used in venture capital financing that outlines the key terms and conditions of a proposed investment. It covers economics (valuation, share price, liquidation preferences) and control (board seats, voting rights, protective provisions). Term sheets are mostly non-binding except for confidentiality and exclusivity clauses. They serve as the blueprint for the definitive legal documents that follow — the stock purchase agreement, investors' rights agreement, and others.
What is Letter of Intent?
A letter of intent (LOI) is a document used primarily in mergers and acquisitions that expresses a buyer's serious interest in acquiring a company. It outlines the proposed purchase price, deal structure, timeline, and key conditions. Like term sheets, LOIs are mostly non-binding except for specific provisions like exclusivity (no-shop), confidentiality, and expense allocation. The LOI kicks off due diligence and leads to a definitive purchase agreement.
Key Differences
| Feature | Term Sheet | Letter of Intent |
|---|---|---|
| Primary Context | Venture capital financing — issuing new shares to raise capital | M&A and acquisitions — buying an entire company or controlling stake |
| Key Focus | Investment economics, governance, and shareholder rights | Purchase price, deal structure, closing conditions, and due diligence scope |
| Who Sends It | Lead investor sends to the startup after initial diligence | Buyer/acquirer sends to the target company |
| Typical Length | 5-12 pages covering detailed investment terms | 2-5 pages with high-level deal terms and conditions |
| What Follows | Definitive docs (SPA, IRA, voting agreement, ROFR) | Due diligence period then definitive purchase agreement |
| Binding Elements | Confidentiality, exclusivity (no-shop), sometimes expenses | Confidentiality, exclusivity (no-shop), break-up fees sometimes |
| Exclusivity Period | 30-60 days typically | 45-90 days typically for due diligence |
When Founders Choose Term Sheet
- →You'll encounter term sheets when raising venture capital. After an investor decides to lead your round, they'll issue a term sheet. It's the single most important document in fundraising because it sets the framework for all definitive legal agreements.
When Founders Choose Letter of Intent
- →You'll encounter LOIs when selling your company, acquiring another business, or in strategic partnerships. An LOI signals genuine buyer intent and typically triggers an exclusive due diligence period.
Example Scenario
A SaaS startup is raising Series A. Sequoia sends a term sheet: $15M at $60M pre-money, 1× non-participating liquidation preference, one board seat, standard protective provisions. The founder negotiates and signs. 6 months later, Salesforce wants to acquire the company and sends an LOI: $500M all-cash acquisition, 60-day exclusivity for due diligence, key employee retention packages. Different documents for very different transactions.
Common Mistakes
- 1Using the terms interchangeably — they serve different transaction types. Signing a term sheet without understanding that the no-shop clause prevents you from shopping the deal to other investors. Treating an LOI as a done deal when significant due diligence and negotiation remain. Not having a lawyer review either document before signing, even though they're mostly non-binding.
Which Matters More for Early-Stage Startups?
It depends on your situation. For startups raising capital, term sheets are the document that matters — they define your cap table and governance for years. For exit scenarios, the LOI matters because it sets the framework for your company's acquisition. Both are critical at different stages of a company's lifecycle.
Related Terms
Frequently Asked Questions
What is Term Sheet?
A term sheet is a document used in venture capital financing that outlines the key terms and conditions of a proposed investment. It covers economics (valuation, share price, liquidation preferences) and control (board seats, voting rights, protective provisions). Term sheets are mostly non-binding except for confidentiality and exclusivity clauses. They serve as the blueprint for the definitive legal documents that follow — the stock purchase agreement, investors' rights agreement, and others.
What is Letter of Intent?
A letter of intent (LOI) is a document used primarily in mergers and acquisitions that expresses a buyer's serious interest in acquiring a company. It outlines the proposed purchase price, deal structure, timeline, and key conditions. Like term sheets, LOIs are mostly non-binding except for specific provisions like exclusivity (no-shop), confidentiality, and expense allocation. The LOI kicks off due diligence and leads to a definitive purchase agreement.
Which matters more: Term Sheet or Letter of Intent?
It depends on your situation. For startups raising capital, term sheets are the document that matters — they define your cap table and governance for years. For exit scenarios, the LOI matters because it sets the framework for your company's acquisition. Both are critical at different stages of a company's lifecycle.
When would you encounter Term Sheet vs Letter of Intent?
A SaaS startup is raising Series A. Sequoia sends a term sheet: $15M at $60M pre-money, 1× non-participating liquidation preference, one board seat, standard protective provisions. The founder negotiates and signs. 6 months later, Salesforce wants to acquire the company and sends an LOI: $500M all-cash acquisition, 60-day exclusivity for due diligence, key employee retention packages. Different documents for very different transactions.
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