Congratulations! After careful inquiry, you have ascertained that the private equity firm you are talking to is professional and reputable and that the principal in charge has been endorsed by other CEOs and business owners.

Weeks of back-and-forth during initial due diligence have gone by. You have shared your business track record and projections and answered seemingly endless questions about customers, suppliers, pricing models, manufacturing processes, key management, and exit plans. Finally, you have received a term sheet from the firm.

What is a private equity investment term sheet, you ask? It is a non-binding agreement (for the most part; more on that later) in which the private equity investor and you agree on the key terms of the investment.

Providing subsequent due diligence goes smoothly; it will serve as a basis for the transaction lawyers to draft agreements.

This does not mean there will be no more negotiations when drafting agreements; it is just that the significant points are agreed upon upfront. It makes sense as the private equity firm will be committing substantial resources to the due diligence process—the typical fees for financial, commercial, and tax diligence can range from RM0.5-RM2.0 mil, or USD100-500k, and are usually borne by the PE firm.