Short answer
A venture debt term sheet is a short summary of the key terms of a proposed loan: how much, for how long, at what cost, with what security and conditions. Most of it is not legally binding, apart from clauses such as confidentiality, exclusivity and costs. It is the best moment to negotiate, because the legal documents that follow are drafted from it.
Key facts
- Mostly non-binding; confidentiality, exclusivity and costs often binding
- Sets facility size, term, interest-only period, rate, fees and warrants
- Sets security and covenants
- Legal documents follow, usually within weeks
The main clauses and what to check
| Clause | What it means | What to check |
|---|---|---|
| Facility amount | The total available | Is all of it available at once? |
| Availability / tranches | When you can draw, and any conditions | Milestones you must hit for later tranches |
| Term | Total length of the loan | Matches your forecast and next round |
| Interest-only period | Months of interest-only payments | Any automatic extension on milestones |
| Interest rate | Fixed or floating | How a floating rate is set |
| Arrangement fee | One-off fee | Paid at signing or drawdown |
| Exit / prepayment fees | Fees on repayment | Cost if you refinance or exit early |
| Warrants | Coverage, strike price, life | Based on full facility or drawn amount |
| Security | What the lender can claim | Fixed and floating charge; any personal guarantees |
| Covenants | What you must and mustn't do | Headroom against your forecast |
| Conditions precedent | What must happen before drawdown | Board approvals, shareholder consents |
| Events of default | What lets the lender demand repayment | Is the MAC clause narrow? |
| Exclusivity and costs | Binding commitments | How long exclusivity lasts; who pays legal fees |
Which terms matter most?
For most companies: the interest-only period, covenants and whether later tranches depend on milestones you might miss. These affect your cash and flexibility far more than a small difference in rate.
Senior debt and intercreditor agreements
If you already have, or plan to have, other lenders, the term sheet will set who ranks first. Venture debt is usually senior debt, secured first. Other lenders may need an intercreditor agreement.
Related: Venture Debt →
Related questions
Is a venture debt term sheet binding?
Mostly not. Confidentiality, exclusivity and costs clauses usually are.
Can I negotiate a term sheet?
Yes, and it's the best time to do so. Changing terms once legal documents are drafted is harder.