Yesterday I signed a deal I’ve been working on since late last year. You’ll no doubt have noticed the paucity of posts to this blog while my time has been otherwise occupied.  No, I’m not ready to reveal details yet, so don’t ask.  I will share one thing, though - the power of a good term sheet.

Having got past the basic decision to do a deal in principle, negotiations often bog down because someone tables a detailed legal document and everyone turns into amateur lawyers.  The wordsmithing takes forever with lawyers heavily involved on what is actually low value work.  Deals can easily fall apart at this stage. Here’s the thing, though; a few basic forms of legal contract will cover most commercial transactions.  Once the deal-specific principles are agreed, lawyers can quickly modify their boiler-plate templates to generate a deal-specific legal contract.

A term sheet is a non-binding document, often only one or two pages long, that lists the basic points of a deal. We saved time, headaches and a fortune in legal fees because we documented the basic deal in a term sheet before the lawyers got really busy.  They made some suggestions as the term sheet was negotiated, but only to make sure we were clear on what we meant and to avoid any pitfalls. Once we reached agreement in principle, as documented in the term sheet, the lawyers quickly drew up the legal documents in a few days, and it only took one round of minor amendments to achieve final documents that we all were happy to sign.

Entrepreneurs, business leaders and investors should know and understand what’s in a typical  contract, but focus on the deal and hire a good lawyer  My experience is that good deal-oriented lawyers not only can advise you on the deal,  but also are great on the words.

“It’s only words, and words are all I have to take your heart away”.