Term Sheet

The short document listing a round's key terms before the legal documents are drafted.

Tech Entrepreneur · Product-Market Fit · core

Also known as: term sheet, letter of intent investment, deal terms

A term sheet lists a round’s key terms — valuation, amount, liquidation preference, board, option pool, protective provisions — in a few pages before lawyers draft the full documents. Almost always non-binding except confidentiality/exclusivity: it frames the deal, and the definitive agreements follow its shape closely.

economics:  valuation + amount + pool + liquidation terms (the money math)
control:    board seats + protective provisions + information rights (the power math)

Read every line for what it costs in money and control across futures, not just today’s headline valuation. A high valuation with harsh preferences and full-ratchet anti-dilution can be worth less than a lower clean offer.

The classic mistakes:

Valuation-only reading. Founders compare headline numbers while preferences, participation, pool mechanics and vesting move more money. Model total economics per term sheet, side by side.
Exclusivity without momentum. Signing away shopping rights (no-shop clauses) to a slow lead kills optionality. Keep exclusivity short, or skip it until diligence is nearly done.
Protective provisions skimmed. Veto lists covering financings, sales, debt, hiring/firing CEO — reasonable singly, strangling in combination. Understand each veto’s future cost.
Founder vesting surprises. Re-vesting requirements on founders’ existing shares appear routinely at priced rounds. Negotiate knowing it comes; credit time served.
Lawyer-free signing. Standard-ish terms still bite the unwary (participating preferred! full ratchet!). Startup counsel reviews every term sheet — non-negotiable expense.

Compare holistically: valuation × terms × partner quality. The best term sheet maximizes long-term founder outcome, not headline price — see liquidation preference for the term that most often surprises.