# DAY 5 — Your First Term Sheet
*Frame × Frame Academy · 5-Day Producer Course · Day 5 of 5*

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## What a Term Sheet Actually Is

A term sheet is a **non-binding outline of intent** that summarizes the deal you and your investor are agreeing to, *before* you spend money on a long-form Operating Agreement.

It's the document that:
- Locks the deal verbally
- Gives your attorney the brief to draft the OA
- Gives the investor confidence to sign the wire authorization

It is **not** the binding contract. The Operating Agreement + Subscription Agreement are the binding documents that come after.

## The 8 Sections Every Term Sheet Needs

1. **Project Identification** — Title, LLC name, producer, logline, budget, location, expected tax credit
2. **Investment Amount** — How much from this investor, class of units, use of funds
3. **Recoupment** — Premium percentage, recoupment order (FIFO/LIFO/Pari Passu), definition of revenue
4. **Profit Split** — Investor pool % / Producer pool %, after 100% recoupment + premium
5. **Producer Compensation** — Your fee, your backend points, deferral terms
6. **Creative Controls** — Final cut, cast approval, title approval
7. **Reporting** — Quarterly updates, annual P&L, distribution statements
8. **Term & Closing** — Effective date, closing conditions, exclusivity

The full template is in your Producer Kit: `01-Term-Sheet-Template.md`. Use it as a starting point, not a finished agreement.

## The Negotiation Points That Matter

| Point | Range | Where to Land |
|---|---|---|
| Premium | 20% / 25% / 30% | 25% standard; 30% if investor is anchor |
| Recoupment Order | FIFO / LIFO / Pari Passu | Pari Passu cleanest; FIFO if seed money |
| Profit Split | 50/50, 60/40, 70/30 | 50/50 is fair for indie; 60/40 if producer brings IP |
| Producer Fee | 5-15% of budget | 10% of budget standard; cap at $250K for indie |
| Backend Points | 5-15% of profit pool | 10% if you brought the script + directing |

## The Lawyer Conversation

Your attorney will draft the Operating Agreement. Find one who has done **at least 10 indie film deals**. Cost: typically $5K-$15K for a clean OA. Worth every penny. Bad OA language has cost producers millions in disputes.

Ask your attorney about:
- **State of LLC formation** — Delaware standard, but consider where your tax credit comes from
- **Manager-Managed vs Member-Managed** — Manager-Managed gives you control; investors are passive
- **Major Decision Approval Thresholds** — What % of investor approval do you need to greenlight changes
- **Capital Call Provisions** — Can investors be called on for additional money mid-production? (Usually no, but draft carefully)

## Your Three-Month Action Plan

**Month 1:** Finalize your business plan + investor deck + this term sheet. Identify 3-5 prospective investors. Have 1-on-1 conversations.

**Month 2:** Sign the term sheets. Engage your attorney to convert into Operating Agreement + Subscription Agreement. Set up your project LLC.

**Month 3:** Investors wire funds. Begin pre-production. Set up bank account and bookkeeping under the LLC name.

## What You've Built Over These 5 Days

- **Day 1:** Understanding what investor premium is and why it's sacred
- **Day 2:** Reading which type of investor you're talking to
- **Day 3:** Negotiating distribution windows separately
- **Day 4:** Choosing the right distributor for the audience your film actually needs
- **Day 5:** Putting it all into a term sheet you can email today

You now know more about the business side of independent film than 80% of working filmmakers.

The rest is execution. Go pitch your project.

## Stay In Touch

- **Submit your deal** for the next case study: [framexframeacademy.com/ip/submit](https://framexframeacademy.com/ip/submit)
- **Generate an investor one-pager** in 60 seconds: [framexframeacademy.com/ip/generator](https://framexframeacademy.com/ip/generator)
- **Frame × Frame Academy** for everything else: [framexframeacademy.com](https://framexframeacademy.com)

— Trade Marq IV · Frame × Frame Academy
