So, how long will it take to get a term sheet?
This is a question that most entrepreneurs appropriately want to know. While there is no one size fits all answer to this question, the focus of this post is to ask what I think is an equally important question for all entrepreneurs – what does a term sheet really mean?
The reason this is important is because all term sheets are not equal. Some firms issue term sheets early in their investment and diligence process (Firm A), while others issue them at the end of their process (Firm B). While Firm A will be able to issue a term sheet more quickly than Firm B, there is likely to be a higher risk that the deal does not close as most of the detailed diligence is yet to be done. Conversely, while Firm B might take longer to issue the term sheet, if/when when they do so, they will likely have a very high likelihood of completing the investment, thus providing the entrepreneur with a higher certainty of close.
Since most term sheets contain exclusivity clauses that restrict the entrepreneur’s ability to speak to other firms and evaluate other financing options, wouldn’t you rather accept a term sheet that has a higher probability of close, even if this takes a little longer? So next time you ask an investor how long it takes to get a term sheet, be sure to also ask what level of commitment their term sheet represents.