Investment Term Sheet (UAE)

An Investment Term Sheet in the United Arab Emirates is a non-binding summary document that sets out the proposed commercial and governance terms of an equity or debt investment in a UAE company, providing the framework for negotiating and drafting the definitive investment documentation. Investment Term Sheets in UAE are used by venture capital funds, angel investors, family offices, strategic corporate investors, and private equity funds when investing in UAE-incorporated companies, whether on the mainland under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021) or in free zones such as the Dubai International Financial Centre or the Abu Dhabi Global Market.

The primary function of a term sheet is alignment before expense. Negotiating and drafting definitive investment agreements, shareholders' agreements, and subscription agreements can cost tens of thousands of dirhams in legal fees and take several weeks. A term sheet — typically three to eight pages — lets the parties agree on the key commercial points quickly and inexpensively before committing to that process. Once the term sheet is signed, both parties have a shared understanding of the deal structure, and legal counsel can draft definitive documents with clear instructions.

Most term sheets are expressly non-binding in their commercial terms: the pre-money valuation, the investment amount, the equity percentage, the liquidation preference, the anti-dilution mechanism, and the governance rights are stated intentions, not contractual commitments. The investment remains subject to satisfactory due diligence and execution of definitive agreements. This non-binding nature is important because circumstances may change during due diligence — a material liability may be discovered, or market conditions may shift — and the parties need flexibility to renegotiate or walk away.

The exception is that most term sheets contain two binding provisions: an exclusivity period and a confidentiality obligation. The exclusivity clause — typically twenty to forty-five days — is binding under the UAE Civil Code (Federal Law No. 5 of 1985) and prevents the company from soliciting or accepting competing offers while the investor completes its due diligence. Confidentiality prevents disclosure of the proposed terms. Breach of either binding provision can give rise to a damages claim.

The instrument is widely used across Dubai's startup scene — in areas such as Dubai Silicon Oasis, DIFC, and Business Bay — as well as in Abu Dhabi's Hub71 ecosystem, Sharjah Research Technology and Innovation Park, and in other Emirates. Institutional investors such as STV, Shorooq Partners, BECO Capital, Wamda Capital, and global funds with UAE offices all use term sheets as the starting point for deal negotiations. The Securities and Commodities Authority (SCA) does not regulate the term sheet itself, but the definitive investment documents that follow must comply with applicable securities and companies laws.

An Investment Term Sheet in the UAE is needed at a specific point in the fundraising process: after initial discussions between the company and the investor have produced enough alignment to justify a formal offer, but before the parties are ready to commit legal fees to drafting full agreements. The most common trigger is a positive outcome from initial investor meetings and pitch presentations.

Seed-stage fundraising almost always involves a term sheet if the investor is a formal venture fund or a structured angel syndicate. Informal angel investments may close on a SAFE or convertible note without a separate term sheet, but any deal involving a new board seat, preferred shares, or multiple governance provisions warrants a term sheet to document the agreed structure before lawyers draft the definitive documents.

Series A and later rounds require a term sheet without exception. The complexity of preferred share terms — liquidation preferences, anti-dilution, dividend rights, conversion ratios, redemption rights — makes it impractical to negotiate directly in the definitive agreements without first agreeing the headlines. A Series A term sheet for a UAE company typically runs five to eight pages and covers all material economic and governance terms.

Strategic corporate investments by UAE conglomerates, sovereign wealth fund affiliates, or multinational companies taking a stake in a UAE startup are typically preceded by a term sheet alongside a memorandum of understanding, as both documents serve to record alignment at different levels of formality.

Cross-border investments — a US or European fund investing in a UAE company, or a UAE fund investing in a company with DIFC or ADGM holding structures — benefit from a term sheet that addresses jurisdiction, governing law, currency, and the corporate structure clearly before lawyers on both sides engage.

The term sheet is also relevant when restructuring existing investor rights in connection with a new round: a bridge, a rights issue, or a recapitalisation. Existing investors who are waiving rights, accepting new terms, or converting instruments need a term sheet to agree the headline changes before the amendment documentation is drafted.

A complete Investment Term Sheet for a UAE company should address every material commercial point that will need to be agreed in the definitive documents, in sufficient detail to give drafting instructions without becoming so prescriptive that it functions as the final agreement.

Parties and corporate details: Company name, emirate of incorporation, trade licence number, and the lead investor's identity and fund mandate. For DIFC or ADGM companies, the registration number and the applicable zone law — DIFC Law No. 5 of 2018 or ADGM Companies Regulations 2020 — should be stated.

Investment amount and security type: The total amount in AED, the class of security offered (preferred shares, convertible note, SAFE), and whether there are co-investors in the round. The pre-money valuation and the post-money valuation should be stated to confirm the equity percentage calculation.

Use of proceeds: Investors, particularly institutional funds, require the company to commit to a use of proceeds so they can monitor deployment and ensure the investment is used for the stated purpose. The Ministry of Economy and the Central Bank of the UAE may also review use of proceeds in certain regulated activities.

Liquidation preference: The multiple (one-times is standard), whether the preference is participating or non-participating, and any cap on participation. The preference determines the investor's payout priority on a sale, merger, or winding up under Federal Decree-Law No. 32 of 2021.

Anti-dilution protection: The type of adjustment mechanism — broad-based weighted average is market standard in the UAE — and any carve-outs for option pool increases or permitted issuances.

Governance rights: Board representation (seat or observer), reserved matters requiring investor consent, information rights (quarterly accounts, annual audit), and inspection rights.

Transfer restrictions: Pre-emption on share sales, tag-along rights for minority investors, drag-along rights for majority investors, and founder lock-up periods. These complement the statutory pre-emption rights under Article 80 of Federal Decree-Law No. 32 of 2021.

Employee option pool: Whether a new or expanded option pool is to be created, and whether it is carved out of the pre-money or post-money valuation. Forms-legal.com provides an Investment Term Sheet (UAE) template that structures all these elements clearly.

Exclusivity period, confidentiality, and target closing date: The binding provisions and the timeline to definitive documents.

Governing law and dispute forum: UAE law and a chosen forum such as the DIFC Courts, Dubai Courts, or arbitration administered by the Dubai International Arbitration Centre (DIAC).

Completing an Investment Term Sheet for a UAE company begins with accurate identification of the parties. Enter the company's full registered name, the emirate or free zone of incorporation, and confirm the company's current capital structure — the existing shareholders, their shareholdings, and any outstanding convertible instruments such as SAFEs or notes that will convert in this round. Enter the lead investor's full name; if the investor is a fund, include the specific fund entity that is making the investment rather than the management company.

For the investment structure, enter the agreed investment amount in AED, select the security type, and record the pre-money valuation. If the company is using a SAFE or convertible note, the valuation may be expressed as a cap rather than a fixed pre-money figure — record whichever form has been agreed. Calculate the investor's post-investment equity percentage clearly: investment amount divided by post-money valuation equals the investor's percentage, assuming no conversion of earlier instruments.

For the use of proceeds, work with the founders to draft a clear budget allocation. Investors rely on this commitment to monitor deployment, and the Ministry of Economy may require disclosure of investment use in some regulated activities.

For governance rights, select the board right that reflects the negotiated position. A first institutional investor taking a minority stake typically receives one board seat; a lead Series A investor with twenty per cent or more typically receives one seat with strong reserved matter veto rights. Anti-dilution and liquidation preference terms should be selected from the standard options and confirmed to match the market practice for the round size and stage.

For exclusivity, set a realistic period — twenty to thirty days is standard for straightforward deals; complex structures may need forty-five days. Enter the target closing date and the key closing conditions, including due diligence satisfaction, execution of definitive agreements, and any Ministry of Economy or SCA approvals needed for the specific activity or foreign ownership level.

Both parties sign the term sheet to acknowledge the terms. The exclusivity and confidentiality provisions are binding from signing; the commercial terms are subject to definitive documentation.

Legal requirements for an Investment Term Sheet in the United Arab Emirates are relatively light for the non-binding commercial provisions, but more substantive for the binding exclusivity clause and the definitive transaction that follows.

As a non-binding statement of intent, the term sheet's commercial terms create no enforceable obligations under the UAE Civil Code (Federal Law No. 5 of 1985). The exclusivity period and the confidentiality obligation, however, are binding contractual provisions once signed, enforceable against the breaching party in the courts of the UAE or through the chosen arbitration forum such as the Dubai International Arbitration Centre.

The definitive investment transaction must comply with the Commercial Companies Law (Federal Decree-Law No. 32 of 2021). A new equity issuance requires a shareholders' resolution to increase the capital under Article 79, three-quarters approval for constitutional amendments under Article 73, a notarised amended Memorandum of Association, and registration with the relevant Department of Economic Development. For companies with foreign shareholders, the foreign ownership limits applicable to the specific business activity must be observed.

The Securities and Commodities Authority (SCA) must be consulted if the investment involves issuing shares to the public or to more than a defined number of investors in a manner that could constitute a public offering under the federal securities legislation. Private institutional investments are generally exempt from SCA registration requirements.

The Central Bank of the UAE's regulations apply to investments in licensed financial institutions. The Ministry of Economy and relevant emirate-level economic departments may require notification or approval of significant foreign investments in certain sectors.

Anti-money laundering requirements under Federal Decree-Law No. 20 of 2018 apply to both the company and the investor; both must maintain know-your-customer records and report suspicious transactions to the UAE Financial Intelligence Unit. The Personal Data Protection Law (Federal Decree-Law No. 45 of 2021) governs personal data processed in connection with due diligence and investor onboarding.

Common mistakes in a UAE Investment Term Sheet can cause costly delays, derail the investment, or create unintended legal obligations. The most frequent error is failing to clearly mark which provisions are binding and which are not. If the term sheet does not expressly state that the commercial terms are non-binding, a UAE court may treat the signed document as a binding contract under the UAE Civil Code (Federal Law No. 5 of 1985), obligating both parties to complete the transaction on those terms.

Leaving the valuation ambiguous is a persistent problem. Some term sheets express the investment at a percentage of equity without stating the pre-money valuation, or state a valuation without specifying whether it is pre-money or post-money. This ambiguity creates a price dispute when lawyers begin drafting the definitive agreements. The term sheet should state the pre-money valuation, the investment amount, and the resulting post-money valuation and equity percentage explicitly.

Agreeing an option pool carve-out without clarity about whether it is pre-money or post-money is a major source of founder-investor disputes. Investors typically want the employee option pool to be created and carved out of the pre-money valuation, which reduces the founders' effective pre-money price per share. Founders prefer post-money carve-outs. The term sheet should be explicit.

Setting an unrealistically short exclusivity period creates pressure that leads to poor decisions. If due diligence cannot reasonably be completed in the exclusivity period, the investor will need to request an extension, which signals weakness, or walk away. Twenty to thirty days is realistic for standard deals.

Failing to address the foreign ownership issue before signing the term sheet can cause the entire deal to collapse at closing. If the company's licensed activity is subject to foreign ownership restrictions that prevent the investor from holding the agreed equity percentage, the investment cannot close as structured. This analysis should be completed before the term sheet is signed.

Neglecting to include representations and warranties in the term sheet — or failing to record agreed carve-outs and disclosure schedules — leaves the scope of the representations open to negotiation after signing, which prolongs the process and often produces worse outcomes for the founders.