A term sheet is a non-binding document that outlines the basic terms of a proposed investment in a company, including valuation, investment amount, ownership stakes, rights, and other key issues. It serves as a template for a binding legal agreement and helps ensure both parties understand the deal terms before incurring legal costs. The term sheet specifies important clauses such as liquidation preference, which dictates how funds are distributed in an exit event, as well as anti-dilution protection, drag along rights, and option pools that allocate ownership stakes to employees.