Term Sheet

TL;DR

A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.

A term sheet summarizes the major economic and control terms of a proposed financing: pre-money valuation, investment amount, share class, liquidation preference, board composition, protective provisions, anti-dilution, and pro rata rights. With a few exceptions (confidentiality, exclusivity), term sheets are non-binding.

Most financings settle most disputes at the term sheet stage. Once the term sheet is signed, definitive documents (Stock Purchase Agreement, Investor Rights Agreement, Voting Agreement) are drafted to implement the terms.

Worked example

A 4-page term sheet from a Series A lead: $10M at $40M pre / $50M post, 1× non-participating preference, broad-based weighted-average anti-dilution, pro rata rights, 1 board seat (5-person board), 60-day exclusivity, definitive docs targeted for 6 weeks out.

Common pitfalls

• Negotiating valuation while ignoring liquidation preference and protective provisions.
• Signing a term sheet with binding exclusivity before checking competing options.
• Accepting 'standard' terms without understanding their downstream impact.

When this shows up in a pitch deck

Term sheets are negotiated after the deck has done its job and the investor is convinced.

See Term Sheet in context

Term Sheet shows up most often in these scoring rubrics and investor profiles — jump straight to who cares about it and how to pitch them.

For investor types

• Corporate VC — Strategic Capital
• Impact Investor — Mission & Returns

Related terms

• Preferred Stock — The equity class issued to investors, carrying special rights such as liquidation preference, anti-dilution protection, and protective covenants.
• Liquidation Preference — The right of preferred shareholders to be paid a defined amount before common shareholders receive any proceeds in a liquidation event.
• Board Seat — A formal director position on the company's board of directors, typically granted to a lead investor in a priced round.
• No-Shop Clause — A binding term sheet provision preventing the company from soliciting or accepting competing offers for a defined window after signing.
• Lead Investor — The investor who sets the terms of a round, takes the largest check, and typically takes a board seat or significant governance role.

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