Navigating from MoU to Term Sheet: Key Steps for Drone OEMs

Role: consultant to an emerging drone OEM

Industry: small consultancy operating on MBB principles

Situation:

we have four potential partners who are interested in potentially purchasing our drone. we have sigend respective MoUs. i now want to move these conversations to a commercial term sheet with some level of real commtiment. i am looking for a methodology which describes the pricnipels steps i need to follow to get from where i am to where i want to be (MoU to Term SHeet). I think this should include some sort of discovery phase where we jintly with each partner define the most likely use case; then we each invetsigate (the partner must do a busines case internally and we need to think about the commercial terms and strategy); and then we can negotiate. but i am not sure.

Question to Marcus:

“

what does the pathway look like from MoU to term sheet. what are the key steps to cover for whom.

Business Case Development

In moving MoUs to term sheets, insist each partner produces a structured internal business case on a tight timeline while you run a parallel commercial model. Provide a one-page template (objective, use case, unit economics, deployment cost, timeline, decision gate) plus a three-scenario financial model (pilot, scale, downside) the partner fills in with their cost and revenue assumptions.

Use MBB-style hypothesis-driven sprints: week 0 align hypotheses (value drivers: cost savings, new revenue, compliance), week 1–2 gather data (ops cost, manpower, regulatory effort), week 3 produce a decision memo and go/no-go recommendation. Insist your commercial team produces a mirrored seller model: COGS, margin by configuration, service cost, spare-parts economics, lead times, and capacity constraints. Align both models on shared KPIs (payback, NPV, IRR, unit TCO) and explicit assumptions (flight hours, failure rates, maintenance intervals). Make internal sign-off criteria explicit (who needs to approve volume commitments, budget, pilot funding). Use these business cases as gating criteria to convert MoUs into term sheets: term sheet only issued when partner’s case reaches preset thresholds or commits pilot funding/resources. This creates discipline, visibility, and real commitment without premature legal work.

Product Strategy

Translate each MoU into a prioritized, use-case-specific product configuration roadmap. Run a short joint requirements workshop to define the “likely” use case (payload, endurance, autonomy level, integrate-to existing systems, environment) and distill into three product outcomes: MVP (pilot-friendly), Scale variant (production-ready), and Optional add-ons (sensors, comms, data services).

For an emerging OEM, modularity is critical: propose a core airframe with swappable payload and comms modules to reduce NPI risk and accelerate partner-specific adaptations. Define acceptance criteria and certification needs up front (airworthiness, radio spectrum, data privacy) and allocate responsibility for each. Build a clear escalation path for product changes that impact price/delivery and include roadmap alignment clauses in the term sheet (e.g., guaranteed upgrade windows, price protection for specified features). As a small MBB-style consultancy, map product decisions to commercial value — quantify how each configuration affects partner ROI and your margin. This keeps negotiations fact-based and prevents scope creep; it also provides a defensible basis for volume, delivery, and upgrade clauses in the term sheet.

Due Diligence

Design a focused due-diligence plan with parallel tracks: commercial, technical, regulatory, and supply-chain. Create a concise checklist and data-room index tailored to drones: aircraft-level test data, MTBF statistics, manufacturing capacity, supplier backlogs, certification status, software lineage/security, and references from pilot customers.

Timebox diligence to avoid long, costly cycles—typically 2–4 weeks for pilot-focused diligence. Assign clear responsibilities: partner provides market/opportunity validation and internal approvals; you provide engineering test packs, production plans, and warranty terms. For each track define go/no-go red flags (e.g., unresolved airworthiness gaps, sole-source critical component with long lead times, misaligned TCO). Use independent third-party validation selectively (flight tests, regulatory counsel) for high-risk items. Feed diligence outcomes directly into the term sheet: attach qualification milestones, escrow arrangements for critical IP, supplier transition plans, and step-in rights if production performance falters. This structured, timeboxed diligence protects both parties and turns the MoU into a commercially executable term sheet.

Negotiations

Approach term-sheet negotiations as a sequence of prioritized trade-offs rather than a single “everything” fight. Prepare a negotiation architecture: tier 1 commercial items (price, volume, delivery schedule, payment terms), tier 2 commercial protections (exclusivity, termination, performance SLAs), and tier 3 legal/IP/regulatory clauses.

Use BATNA analysis for both sides and set reservation points before the table. Build an issues matrix (MECE) with desired outcomes, acceptable concessions, alternatives, and required approvals. Timebox negotiation phases (discovery, commercial terms, legal heads of terms) and require decision-makers to attend key milestones to avoid last-minute reversals. Use objective anchors — your cost model, TOC comparisons, competitive benchmarks, and quantified pilot economics — to justify positions. For a small consultancy on MBB principles, prepare a two-column trade-off playbook for each partner: “what we need” vs “what we can give” tied to contract milestones (e.g., incremental discounts only once volumes and servicing KPIs are met). Include clear escalation pathways and a neutral arbitration clause to reduce friction. End with a draft term sheet that records open issues and a short timeline to definitive agreement.

Pricing Strategy

Develop pricing that reflects the partner’s value capture and your margin protection. Model at least three pricing archetypes: per-unit purchase (CAPEX sale), subscription/usage (platform-as-a-service or per-flight-hour), and outcome-based (revenue-share or cost-per-surveillance-hour).

For each partner map the pricing to their KPIs: if they value predictable OPEX, emphasize subscription; if they buy capital assets, layer in spare parts and service contracts. Build a tiered volume-discount schedule with clear breakpoints and time-limited pilots at promotional pricing. Include escalation clauses for input-cost inflation, FX exposure, and extended lead times. Define payment milestones—deposit, delivery, acceptance, milestone payments for scale—and penalties or credits for missed SLAs. Don’t neglect aftermarket economics: spare parts, training, software updates, and data services often drive long-term margin; capture these in the term sheet with minimum guarantees or revenue-share formulas. Validate price with sensitivity testing (impact on partner NPV at +/-20% price) and prepare defensible anchors: comparative cost of alternatives (manned ops, competitors), TCO, and payback period. Present pricing scenarios visually to speed partner decision-making.

Alliances

Decide the partnership archetype early and reflect it in the term sheet: reseller/distributor, OEM sale with co-branding, joint development, licensed manufacturing, or JV. Each carries different expectations on IP, revenue recognition, territory, exclusivity, and governance.

For pilots, prefer non-exclusive, low-commitment structures with clearly defined escalation to exclusive or co-development agreements only after successful validation milestones. Design governance up front: steering committee membership, meeting cadence, KPI dashboards, dispute resolution, and clear RACI for product changes and certification tasks. Include marketing and sales responsibilities in the alliance clause—who funds case studies, who owns customer relationships, and who handles regulatory liaison. For an emerging OEM, consider capacity-protection mechanisms (minimum purchase guarantees, reservation rights) and co-investment models for scale production. Capture all of this in the term sheet as “pathway to scale” clauses: milestones that trigger deeper alliance, allocation of IP rights for jointly developed features, and commercial terms for future co-sells. This avoids ambiguity and protects both parties as the relationship matures.

Stakeholder Management

Map stakeholder groups on both sides and secure executive sponsors before drafting a term sheet. Typical stakeholders for drone deals include procurement, operations/field teams, aviation/regulatory/compliance, IT/security, finance, and end-users (pilots/operators).

Create a stakeholder influence-interest grid and tailor messages: executives need strategic alignment and financial thresholds; operations need supportability and SLA guarantees; regulators need compliance evidence. Run a short series of facilitated workshops to align acceptance criteria, pilot scope, and funding lines; capture agreements in a decision memo signed by stakeholders to prevent later backtracking. As a small MBB-style consultancy, build a one-page stakeholder engagement plan per partner: owner, primary ask, approval authority, and decision date. Ensure procurement and legal are involved early to flag non-negotiables (indemnities, insurance, export controls). Use steering meetings with a consistent agenda and a short decision log to keep momentum. Explicit stakeholder alignment reduces negotiation cycles and ensures the term sheet converts to final contracts.

Risk Management

Embed a clear risk register into the pathway from MoU to term sheet: list technical, regulatory, supply-chain, commercial, and operational risks and assign likelihood, impact, and mitigations. Tie mitigation actions to term-sheet mechanics: conditionality (term sheet subject to certification milestones), escrow for critical IP, supplier redundancy clauses, and phased payment tied to acceptance milestones.

Include liability caps, indemnities, and insurance requirements proportionate to assessed risks. For supply risk, require lead-time transparency and dual-sourcing commitments or inventory buffers; for regulatory risk, agree who funds certification activities and timelines. Define pilot acceptance tests and kill-switch criteria so both sides know when to walk away without protracted disputes. Keep the register visible and dynamic—update it after pilot flights and during joint tests. This approach turns abstract risks into contractual levers, allowing you to negotiate tolerable exposure rather than get stuck in worst-case hypotheticals.

Product Go-to-Market Strategy

Translate a signed term sheet into a short, phased GTM playbook tied to pilot outcomes. Define target customers, sales motion (direct vs channel), training and field-support requirements, spare-parts logistics, and marketing collateral tied to pilot case studies.

For each partner, set explicit pilot success metrics (operational uptime, mission completion rate, cost per mission) and the trigger conditions to move from pilot to commercial rollout. Allocate responsibilities for customer onboarding, technician training, and local regulatory engagement; include SLAs for response times and mean-time-to-repair in the term sheet. Build a handoff plan from pilot team to commercial operations with a runbook, sample contracts for end customers, and a pricing playbook for initial deals. As a small consultancy, help partners template these items to speed scale and reduce custom legal work. A GTM plan linked to contractual milestones reduces friction, aligns expectations, and ensures the term sheet is a living document that connects product delivery to revenue realization.