Fundraising
Term sheet
A non-binding document outlining the proposed terms of an investment — valuation, amount, ownership, board, protective provisions, and economic rights.
In plain English
The investor's offer letter. Mostly non-binding, but a signed term sheet sets the price and structure for everything that follows; you rarely walk back from it.
Example
A pre-seed term sheet for a $500k investment at $4.5M pre-money offers: investor gets 10% post-money, 1× non-participating liquidation preference, weighted-average anti-dilution, pro-rata rights, and one board observer seat.
Why it matters
The headline valuation is one line; everything else (liquidation preference, anti-dilution, pool top-up, founder vesting reset, board control) is where founders lose value. Read every clause; let your lawyer translate.
Common mistakes
- Negotiating only the valuation; ignoring protective provisions and liquidation preference
- Signing before talking to a startup-experienced lawyer
- Accepting a fully-shuffled option pool top-up out of pre-money without modelling the dilution
- Missing the no-shop / exclusivity clause that locks you out of competing offers