The “Pulled” Term Sheet by Fred Wilson

  • Title: The “Pulled” Term Sheet
  • Author:
  • Source link: https://avc.com/2005/04/the_pulled_term/
  • TL;DR: Term sheets may get pulled because the founders misled the investors in some way or the investors signed a term sheet without doing their due diligence. Companies can avoid this by, obviously, not being misleading, and also forcing the VCs to do their research before signing anything
  • How helpful?: 5/5 
  • Topic Tags: term sheets, pulled, backing out
  • Relevant questions addressed:
  • What are some of the common causes for a term sheet getting pulled?
  • What can entrepreneurs do to prevent their term sheets from getting pulled?
  • Summary bullet points
  • A term sheet getting pulled is not common, but it does happen
  • For the author’s VC, if they are sold on an investment opportunity and just need to do their own third party verification work, then they’ll move quickly toward a term sheet. If there is a surprise, it means the entrepreneur misled the VC in some way and will result in a pulled term sheet
  • Hot deal/hot markets lead to pulled term sheets
    • If lots of VCs are courting a company, then they may want to get a term sheet ASAP to lock up the deal . Thus, they may be signing a term sheet before they’ve done the required work
    • Advice: company should force investors to get their work done before signing a term sheet
    • Important thing to avoid because “no shop” clauses can make you lose a lot of time if the VC does end up pulling out
  • Follow up links