How to use a founder term sheet at your startup (& bonus template download at the end)
Founder term sheets are useful because they set clear expectations for cofounders; they summarise the rights, roles and responsibilities of cofounder’s working together before you prepare a cofounder agreement.
Term sheets are also known as heads of agreement and terms of agreement.
So when should you use a founder term sheet ?
You can prepare a cofounder term sheet from the moment you and your cofounder first discuss working together.
And ... if you have not done this yet because you have been busy with everything else, that’s ok, you can prepare one any time after launch as well.
If you are preparing a founder term sheet after launching your startup and you already have other agreements in place like a shareholder agreement, the statement below can be helpful to handle any possible conflicts with other agreements:
Conflict with [insert agreement name]
If there is a conflict between a provision of this founder term sheet and a provision of the [insert agreement name], the [insert agreement name] will prevail.
The founders will take all steps necessary to ensure this founder term sheet and is amended in order to remove the conflict.
Why use a term sheet ?
Because it can be easier to decide what you will do upfront with your cofounder, before you encounter any conflict together or worse, a situation where you may not be speaking terms.
No. You don't need a lawyer to prepare your founder term sheet.
In fact, it’s sometimes a good idea to prepare a term sheet before you see a lawyer to save time negotiating them with a lawyer and cut costs.
It's likely you won't cover everything in the founder term sheet. And that's ok.
Here's a solution:
To cover for any items that you or your cofounder may miss in the term sheet, you can include this statement below:
This document does not considered an offer or agreement of any kind.
This term sheet serves only to assist in the finalisation of a formal agreement between all parties.
Any reference to currency refers to [insert currency]. All parties should seek independent legal and financial advice before proceeding with any agreement, contract and/or deed.
You can include a statement that your term sheet will be legally binding, but if you do this then you have to stick to the terms.
Usual term sheet topics include:
After you prepare your term sheet, a lawyer can help you draft a founder’s agreement that covers the items on the term sheet and any you may have missed.
Below is a handy sample term sheet below that you may download and use for your startup.
A resource to help you outline: cofounder duties and non legally binding terms before you have a founder agreement drafted.