Are Series A term sheets binding?

May 16, 2007

Almost all term sheets provide that they are not binding, except for certain provisions regarding exclusivity, confidentiality and/or expenses (all of which I will cover in a later post) depending on the term sheet. An investor can refuse to complete the financing at any time if the term sheet isn’t binding. I’ve heard of many situations where a company had a signed term sheet and the financing never occurred. A company has very little practical recourse if a venture fund fails to complete a financing after signing a non-binding term sheet. However, there is a California case that held that a document intended to outline the terms of a proposed transaction may impose a duty to negotiate in good faith on the parties.

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