Forget The Term Sheet?
Certain phrases scare the heck out of me. For instance, "This won't hurt a bit," "This may feel a little cold," "This stock can't lose!" and, of course, "It tastes just like chicken." But perhaps the most frightening statement I've come across in my practice is the following: "Let's forget the term sheet and just draft the contract."
Why is this scary? Going straight from idea to contract without passing term sheet is a little like writing an article or book without an outline. Sure, you can do it. But it's quite painful. And it wastes a lot of time, including attorney time (which can be expensive---or so I've heard.) Other than some very simple deals a term sheet is key, for at least two reasons. First, it helps you think through the deal. Second, it keeps everyone involved in the deal on the same page. Or sheet.
Jonathan Handel has a great piece, posted here, on the basics of term sheets. The main ideas in his piece apply to just about any deal. One thing I would stress: as a default, make the term sheet or LOI non-binding. If you want to bind the other party, enter into a contract. Yes, sometimes it's appropriate to do binding LOIs or term sheets. But rarely, in my experience.
