A term sheet is a short, mostly non-binding summary of the deal. The final investment agreements follow it closely, so negotiate here — not later.
Economic terms
- Pre-money and post-money valuation — know which one is being quoted and whether the ESOP pool is included.
- Liquidation preference — how much investors get back first in a sale. A 1x non-participating preference is common at early stages.
- Anti-dilution — protects investors if a later round is priced lower. Broad-based weighted average is the founder-friendly standard.
- ESOP pool — the share of the company reserved for future employees.
Control terms
- Board composition — who sits on the board after the round.
- Reserved matters / veto rights — decisions that need investor approval. Keep the list focused.
- Founder vesting — your shares vest over time; ask for credit for time already served.
- Drag-along and tag-along — rules for selling the company or your shares.
Before you sign
Have a startup lawyer review the term sheet, compare it with market norms, and model what each clause means in a few exit scenarios.