A term sheet is short, usually not binding, and easy to underestimate. Most of what goes wrong in a deal was visible in it from the start.
A term sheet sets out the main points of a proposed deal before the lawyers write the full agreement. Because it is brief and mostly non-binding, it is tempting to agree it quickly and leave the detail for later. That is a mistake. Once a term sheet is signed, every point in it becomes very hard to reopen, and every point left out becomes something the other side will draft in its own favour.
Price is the first thing anyone reads, but the way it is paid matters as much. How much is paid at completion, how much is deferred, how much depends on future results, and how much is paid in shares rather than cash. Two offers with the same headline can be worth very different amounts once these are set side by side.
Next comes what the buyer or investor is asking for in return. Warranties and indemnities set out who carries the risk of problems found later, and for how long. Conditions set out what must happen before the deal completes, and each one is a way out for the other side. Exclusivity stops the seller talking to anyone else, so its length deserves attention.
For an investment rather than a sale, control is the central issue. Board seats, veto rights, what decisions need the investor's consent, and what happens on a later sale or a further round. These terms shape how the business is run for years.
A useful exercise is to read the term sheet as if the relationship has gone badly. What happens if targets are missed, if a key person leaves, or if the other side wants out? The answers are usually in the document, or conspicuously absent from it.
A good term sheet is not the one with the best number. It is the one where both sides understand what they have agreed, and where nothing important has been left to be argued about later.