Term Sheet

Often we have found that it is good to prepare properly before the first phase of the negotiation by setting down the most important business issues and commercial terms in a simple document. Having declared the business rationale and your limits, the next phase of turning your document into a Term Sheet, dressing the commercial principles into a semi-legal agreement that can form the starting point for the negotiation.

It is recommended that you present the full legal agreement for negotiation first when you are in agreement and both parties have signed the Term Sheet. A common mistake is to start with a full legal agreement when there is no common understanding of the commercial principles of the deal. Negotiating the entire agreement too early may lead the parties to become too detail-oriented in less prioritized business issues, which will often result in longer negotiation phases.

Why you should use a Term Sheet the next time you negotiate:

• Defining the commercial principles for your deal puts you in the lead of the negotiation’s early phase
• You set the structure of the deal
• Getting the other party to commit and respond to the main commercial principles early ensures an efficient and constructive discussion – time well spent
•  Many first drafts of agreements come from templates and are not adapted for this particular deal which can lead to a lot of unnecessary work
• Having nailed the main commercial terms, you are aware of the important business risk to focus
• The negotiation will be driven from a commercial standpoint, not from a more detailed oriented legal perspective (which often can be counter-productive and costly)