Provide a definition of a term sheet and explain its purpose.

A term sheet is a non-binding document issued by investors to an entrepreneur or start-up company that outlines the terms and conditions of an investment into the business. It serves as a precursor to a more detailed legal agreement and can help both parties reach quick consensus on major points before investing further resources into negotiating a binding agreement.

The contents of the term sheet vary from case to case but typically include items such as pre money valuation, equity/debt structure, rights associated with ownership/investment, vesting schedule for founders/employees and other significant conditions attached to the proposed investment. Some may also include liquidation preferences, redemption rights or anti dilution provisions depending on the circumstances surrounding each individual deal. While term sheets do not have any legal implications since they are not binding documents – it does indicate what each party has agreed upon in principle which allows them to move forward with their negotiations in good faith.

In summary, a term sheet is used as an initial negotiation tool between entrepreneurs/startups and potential investors which summarizes key elements regarding their prospective investments including information related to valuation, equity structure and various other clauses depending on the specifics of each venture. This document helps ensure that all parties involved are aware of expectations going forward so they can move towards finalizing agreements without having wasted time or resources if there were any miscommunications at play initially.