A well-drafted Investment Term Sheet should tell founders exactly which provisions are legally binding under Vietnamese law and which are merely statements of intent.
An investment term sheet is generally treated as a non-binding document, but in practice several of its provisions carry binding legal force even before the definitive investment agreements are signed — and founders often don’t realise this until a dispute arises.
This briefing, prepared by IVLF Advisors’ private equity practice, reads a term sheet the way counsel would: which provisions actually bind under Vietnamese law, which merely record intent, and the traps founders repeatedly fall into.
Is a term sheet legally binding?
Under the 2015 Civil Code, a term sheet is essentially a pre-contractual agreement. Even where the parties label the term sheet “non-binding” as to the economic and structural terms, the good-faith negotiation principle still applies — a party that negotiates in bad faith and causes loss to the other side can face liability under the rules on contract formation.
Binding provisions: confidentiality, exclusivity, costs, governing law
Regardless of a headline “non-binding” statement, the following provisions are typically drafted to take immediate binding effect: confidentiality obligations covering information exchanged during negotiations; an exclusivity clause preventing the founder from negotiating with other investors for a defined period; allocation of transaction costs; and the governing law and dispute resolution forum applicable to the term sheet itself.
Economic provisions: valuation, amount, share class, tranched payment
Pre-money/post-money valuation, investment amount, the class of shares to be issued and any tranched payment schedule are typically stated as legally non-binding, but carry high practical weight because they form the basis for drafting the SPA/SHA — changing these terms after signing the term sheet is often treated as a sign of bad faith.
Control provisions: board seats, veto rights, information rights
Provisions on the right to nominate board members, the list of reserved matters requiring investor consent, and periodic financial information access rights are typically sketched out in the term sheet and fleshed out in the SHA — founders should press for clarity at this stage to avoid surprises when negotiating the SHA.
Early exit provisions in the term sheet
Many term sheets now build in exit-oriented provisions from the outset — for example, priority rights on an IPO, tag-along rights, or even a preliminary framing of a put option against founders. These are provisions founders should read carefully, since they shape the entire exit strategy down the line.
Three provisions founders should renegotiate at the term sheet stage
Advisory experience shows three points founders frequently overlook at the term sheet stage but find difficult to renegotiate later: the scope and duration of the exclusivity clause; the anti-dilution mechanism and which type applies; and the conditions and thresholds triggering investor veto rights.
From term sheet to SPA/SHA: what changes
When moving from the term sheet to the definitive SPA/SHA, the economic and control provisions get drafted in full detail, together with representations, warranties, conditions precedent and breach mechanisms — this is the stage where counsel needs to be closely involved to ensure the term sheet isn’t “reinterpreted” against the founder.
Counsel’s view: Don’t sign a term sheet on the assumption that it’s “just a non-binding document” — the exclusivity and confidentiality provisions can bind immediately, while the economic terms, though not legally binding, are in practice very difficult to change.
Frequently asked questions
Does a term sheet need to be notarised or registered?
No, a term sheet is an ordinary civil agreement between the parties and requires no notarisation or registration. Can a party walk away from negotiations after signing a term sheet?
In principle yes, but breaching the exclusivity clause or negotiating in bad faith can trigger liability for resulting losses.
Which term sheet provision matters most for founders?
The scope of exclusivity and the investor’s veto rights — these two provision groups shape negotiating room in subsequent funding rounds. IVLF Advisors’ private equity practice helps founders review and negotiate term sheets before signing.
Request our bilingual annotated term sheet from the IVLF team.
Investment Term Sheet: Practical Takeaway
Reading an Investment Term Sheet carefully before signing means separating binding clauses like exclusivity and confidentiality from non-binding indicative pricing and conditions precedent. For related structuring guidance, see IVLF Advisors’ private equity and venture capital advisory services.
Founders should also review guidance from the National Business Registration Portal on charter amendments typically required to implement term sheet commitments. A carefully negotiated Investment Term Sheet reduces disputes at the definitive agreement stage.
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This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
