A term sheet is a binding agreement on principles entered into by management and by the fund, but subject to the conditions precedent of closing of the transaction.

Management can enter into conditional but binding term sheets with several candidate investors.

The term sheet defines among others:
(i) the economics of the management incentive package,
(ii) governance rights of management vs. fund and
(iii) transfer restrictions on securities, including pre-emption rights, tag-along and drag-along rights, rights of first offer, call and put-options, eg. in case of good / medium / bad leaver events.

The term sheet can also provide protection against dilution, specific agreements with regard to early retirement, etc.