Are Term Sheets legally binding on Founders?
A Term Sheet could be a handshake agreement or a two pager stating terms at which an investor is putting money in a startup.
However, Term Sheets may not be legally binding on either the investor or the founders/startup till the time Definitive Agreements (Shareholders Agreement, Share Subscription Agreement, etc) are signed.
However, the following clauses can be binding and you should be cautious about them.
Confidentiality: You won’t disclose the terms to anyone else
No Shop: You won’t use the Term Sheet to negotiate better terms with another prospective investor
Time Period: duration till which the terms hold unless executed into Definitive Agreements
