Term Sheet to Close: The Legal Process and Timeline After Getting Your Term Sheet

Term sheet to close timeline and legal process for SaaS fundraising

What a Term Sheet Is and What It Is Not

A term sheet is a non-binding agreement that outlines the terms of a fundraising round. It specifies the amount of capital being invested, the post-money valuation, the type of shares being issued (preferred, ordinary), and the investor's rights (board seat, pro-rata participation, liquidation preferences). A term sheet is not final. After the term sheet, you enter a negotiation period where the actual legal documents (called a Share Purchase Agreement or SHA) are drafted and negotiated. The term sheet is like a wedding proposal; the SHA is the marriage contract. Many founders think a signed term sheet means the deal is done. It is not. The deal is done only when capital is actually wired and share certificates are issued.

Selecting Legal Counsel: Founder vs Investor Counsel

When you receive a term sheet, immediately hire a startup law firm to represent you. Your investor will have counsel; you need independent counsel to protect your interests and negotiate terms. Do not use the same counsel as your investor. Do not represent yourself. A £5M Series A round involves £40-80k in legal fees, but saving £20k on legal by using cheaper counsel or representing yourself risks losing £500k in unfavourable terms. Startup-focused law firms (like Cooley, Fenwick, or Orrick on larger rounds, or local startup firms on smaller rounds) understand venture financing and can negotiate standard terms efficiently.

Interview 2-3 law firms, ask their Series A fee (typically £8-15k for Series A, higher for Series B), and understand their process. Ask whether they will negotiate aggressively on valuation and preference terms. Some firms bill by the hour and incentivise extended negotiations. Others charge flat fees and want to move quickly. Flat-fee counsel is typically better for founders because they want to close efficiently. Expect the first legal conversation to happen within 72 hours of your term sheet.

Week One: Due Diligence Initiation and SHA Drafting

Week one begins immediately after you sign a term sheet. Your investor begins formal due diligence (as covered in the previous spoke). Simultaneously, the investor's counsel drafts an initial SHA and sends it to your counsel. This SHA reflects the investor's standard template and will be heavily weighted in their favour. Your counsel reviews the draft and identifies areas for negotiation. Do not panic at how one-sided the initial draft appears. This is expected. The negotiation is about moving from the investor's aggressive starting position to a balanced position.

In week one, your due diligence coordinator provides the investor with your requested documents. You prepare customer reference contacts. Your CEO and CFO remain available for investor questions. Do not disappear during this period. Responsiveness to investor requests demonstrates professionalism and speeds the process.

Week Two: Term Sheet Negotiation and SHA Comments

Week two focuses on negotiating the term sheet terms before SHA details are locked. Your counsel prioritises negotiations around three items: valuation (are you happy with the post-money valuation or do you want to push back), preference terms (1x non-participating, 1x participating, other), and board composition (how many seats do you retain, how many does the investor get). These are the highest-leverage negotiations. Do not let lawyers argue about boilerplate provisions (indemnification language, representations and warranties) before you have agreed on economic terms.

Valuation negotiation should happen in week two if your due diligence is progressing well. If the investor is going to try to reduce valuation based on findings, they will signal this in week two. If they accept your valuation, lock it in writing. Preference negotiation is easier: most Series A is 1x non-participating. If the investor demands 1.25x or higher, push back and reference market norms.

Week Three to Four: Due Diligence Completion and Conditions to Close

Weeks three and four focus on completing due diligence and agreeing on conditions to close. Your investor will want confirmation that you have resolved any issues identified during due diligence. Conditions to close are typically: signed SHA, audited financials or accountant certification of financials, cap table cleanup and updated cap table, evidence of IP assignment to the company, and evidence that no material adverse change has occurred to the company. These are standard and non-negotiable. Begin preparing for these in week one so they are not bottlenecks in week three.

The most common delay at this stage is cap table cleanup. If your cap table has issues (missing option grants, incorrectly documented founder equity, or founders with shares in multiple entities), now is the time to fix them. Hire a corporate attorney to regularise your cap table. This is separate from the fundraising counsel and costs £2-5k depending on complexity. Do not delay cap table cleanup. It is the most common reason fundraises miss their close date.

Week Five to Six: SHA Negotiation and Legal Drafting

Once economic terms are agreed (valuation, preference, board seats), week five focuses on SHA language negotiation. This is tedious but important. Your counsel and investor counsel will go back and forth on representations and warranties, indemnification, and miscellaneous provisions. Priorities for founder-friendly negotiations: limit your personal indemnification obligations (the company should indemnify founders for actions taken in their capacity as directors or officers), limit reps and warranties that survive closing (many drafts say reps survive 18-24 months; push for 12 months or less), and ensure no personal guarantees of company obligations.

The SHA negotiation typically involves 3-5 rounds of comments. Your counsel will push back on aggressive investor language, the investor counsel will defend it, and eventually you reach compromise. This process takes 1-2 weeks. Do not expect perfection. Some investor-friendly language is standard and accepted. Focus on material issues.

Week Seven: Completion Board Meeting and Wiring

Week seven is completion week. A board meeting is held (or a shareholder written consent is obtained, which is faster) where the board approves the issuance of shares, the SHA is signed by all parties, conditions to close are confirmed as satisfied, and the wire instructions are provided. After the board meeting, the investor wires capital. For UK incorporations, this typically takes 24-48 hours. Once the wire is received and cleared, you have capital and the deal is officially closed.

At close, your counsel confirms all closing documents and cap table updates are recorded. The cap table is updated to reflect the new investor's shares. You receive a closing memorandum that summarises all documents signed and capital received. This memorandum is evidence of the investment and is needed for future fundraising documentation.

Week Eight: Post-Close and Governance

Week eight involves final wrap-up. Ensure all post-closing items are completed: new director or board observer is added to your board if applicable, amended articles of association are filed with Companies House (for UK companies), the option pool is established or refreshed, and share certificates or confirmations are issued to the investor. Schedule your first formal board meeting with the new investor. Investors expect an initial board meeting within 30 days of closing.

Common Reasons for Delays

Delays most commonly stem from: cap table issues requiring cleanup (add 2-3 weeks), undisclosed customer concentration (triggers renegotiation), undisclosed litigation (triggers indemnification discussions), IP not properly assigned to the company (requires retroactive assignments), missing employment agreements with key employees, and disagreement on valuation mid-process. Proactive preparation in the first 3-4 weeks prevents most delays. Be transparent with your investor early about any issues. A founder who surfaces a problem in week two has time to fix it. A founder who hides a problem until week five causes delays.

Legal Costs and Budgeting

Typical Series A legal costs: founder counsel £40-60k (flat fee), investor counsel £30-50k (investor pays), accountant for financials and cap table £5-10k, IP cleanup or assignment £2-5k, and miscellaneous (corporate filings, board secretary services) £3-5k. Total legal spend is usually £50-80k on the founder side. This is an investment. Do not cheap out by using non-specialist counsel. Your legal costs are 1-2% of capital raised. The risk of getting terms wrong is significantly higher than the cost of good counsel.

Key Takeaways

Term sheet is non-binding; deal closes only when capital is wired and shares are issued
Hire independent startup counsel immediately upon receiving a term sheet
Prioritise negotiating valuation, preference type, and board composition in week two
Term sheet to close typically takes 4-8 weeks depending on due diligence and cap table complexity
Most common delays: cap table cleanup, IP assignment, and customer concentration renegotiations
Typical legal costs: £40-80k for Series A, including both sides of counsel
Prepare cap table and address due diligence issues proactively in weeks one-three