New business model? Termsheet.

If you are a regular reader of Oh Lawdy!, you will know that I’m a big fan of term sheets.

They can be incredibly valuable, particularly if your business is putting together a new business model.

But first a clarification: by “term sheet”, I don’t mean a document which you can put in front of your potential customer or supplier, I mean something which is a stage earlier than that – let’s call it an internal term sheet.

For example, if your term sheet has references to confidentiality in it. Yes, confidentiality is important, and a confidentiality clause will be in almost every contract you sign. But precisely because it is omnipresent and uncontroversial, you don’t need it in your internal term sheet.

The primary function of the internal term sheet is to draw out and make explicit the legal aspects of the new business model. It’s best prepared by someone with legal expertise because they will see the issues differently, and with greater precision, than the members of the team with other skillsets (ops, development, finance, HR, etc).

Once created, it allows the business to say: “this is what we are planning to do – do these legal elements make sense from our side of the business?”. This makes it easier to explain the legal choices available, to discuss alternatives and their pros and cons, and to make sure the whole business is aligned.

9 July 2024