Term Sheet Template

In plain language: Identifies the company, the lead investor or acquirer, the type of transaction, and the total capital or consideration involved.

Common mistake: Using a trade name instead of the company's registered legal entity name — this creates ambiguity in definitive documents about which entity is actually issuing securities.

In plain language: States the agreed pre-money valuation, the total round size, and the resulting post-money valuation and investor ownership percentage.

Common mistake: Omitting whether the option pool is included in the pre-money or post-money calculation. An option pool shuffle built into pre-money valuation can reduce founder ownership by 5–15% in ways that aren't immediately obvious.

In plain language: Defines the class of security being issued — common stock, preferred stock, convertible note, or SAFE — and references the post-closing cap table.

Common mistake: Describing the security type vaguely as 'equity' without specifying share class. Different classes carry materially different economic and governance rights that will govern the entire relationship.

In plain language: Specifies how many times the investor's original investment must be returned before common shareholders receive proceeds, and whether preferred shares also participate in the remainder.

Common mistake: Accepting participating preferred without a cap. Uncapped participating preferred allows investors to double-dip on every exit, significantly reducing founder and employee payouts at acquisition.

In plain language: Describes how the investor's conversion price is adjusted if the company raises a later round at a lower valuation — typically broad-based weighted average or full ratchet.

Common mistake: Agreeing to full-ratchet anti-dilution without understanding its impact. Full ratchet reprices the investor's entire position to the down-round price, potentially decimating common stockholder ownership.

In plain language: Sets the size and composition of the board, which matters are subject to investor approval or veto, and any special voting rights attached to preferred shares.

Common mistake: Agreeing to an open-ended list of protective provisions without negotiating dollar thresholds. Veto rights over all debt financings with no minimum threshold can paralyze routine vendor credit and equipment financing.

In plain language: Gives the investor the right to maintain their ownership in future rounds and to receive periodic financial statements and management reports.

Common mistake: Granting information rights without a confidentiality carve-out. Investors who are also LPs in competing funds may share sensitive financials without a non-disclosure obligation embedded in the information rights clause.

In plain language: Lists the conditions both parties must satisfy before the investment or transaction closes — due diligence, definitive document execution, regulatory approvals, and any outstanding legal matters.

Common mistake: Writing conditions so broadly that the investor can walk away for any reason. A 'satisfactory due diligence' condition with no defined scope or time limit gives the investor a perpetual option to exit at no cost.

In plain language: The binding provisions — exclusivity requires the company not to solicit competing offers for a set period; confidentiality restricts disclosure of term sheet contents.

Common mistake: Making the entire term sheet binding, including the valuation and deal terms. Only the no-shop, confidentiality, governing law, and expenses provisions should be binding — marking everything else as binding creates unintended contractual obligations before definitive agreements are negotiated.

In plain language: Allocates which party pays legal and advisory costs if the deal closes or does not close, and designates the governing jurisdiction for any disputes.

Common mistake: No cap on investor legal fee reimbursement. Without a dollar ceiling, a protracted negotiation can obligate the company to reimburse $50,000+ in investor counsel fees even if the deal eventually closes.

A term sheet is a short, mostly non-binding document summarizing the principal commercial and legal terms of a proposed transaction — typically a venture capital or angel investment, an M&A deal, or a strategic partnership. It aligns both parties on deal shape and key economics before lawyers spend weeks drafting definitive agreements. Most of its provisions are non-binding, but exclusivity, confidentiality, and expense clauses are typically made binding at signing.

In most jurisdictions, the majority of a term sheet's provisions are expressly non-binding — meaning either party can walk away without breach. However, specific clauses are typically made binding at signing, including the no-shop (exclusivity) period, confidentiality obligations, governing law, and legal fee reimbursement. Courts have occasionally found implied obligations to negotiate in good faith even for non-binding term sheets, so both parties should treat the document as a serious commitment even where it is technically non-binding.

The two documents serve the same structural purpose — capturing agreed deal terms before definitive agreements — but are used in different contexts. A term sheet is standard in VC and PE financing rounds and emphasizes equity economics, governance, and investor rights. A letter of intent is more common in M&A transactions and typically focuses on purchase price, deal structure, and conditions to closing. In practice, the terms are often used interchangeably in private deals.

Thirty to sixty days is the market standard for most venture and growth equity term sheets. M&A transactions typically run 30–90 days depending on due diligence complexity. The exclusivity period should be long enough for the investor or acquirer to complete due diligence and draft definitive documents, but short enough to pressure both sides toward closing. Include a mechanism to extend by mutual written agreement rather than letting the company fall into an indefinite no-shop.

A liquidation preference entitles preferred shareholders to receive a specified multiple of their investment before common shareholders receive any proceeds in a sale, merger, or wind-down. A 1× non-participating liquidation preference — the current market standard for most Series A deals — means investors get their money back first but do not participate further. Participating preferred allows investors to take their preference and then share in remaining proceeds, which can significantly reduce founder and employee payouts in smaller exit scenarios.

Anti-dilution protection adjusts an investor's conversion price downward if the company later issues shares at a lower price — protecting the investor from value erosion in a down round. The two main types are broad-based weighted average (market standard, moderates dilution impact) and full ratchet (aggressive, reprices the investor's entire position to the new lower price). Founders should strongly prefer broad-based weighted average and negotiate carve-outs for employee stock plan issuances and small strategic financings.

For straightforward seed investments using standard NVCA or YC-style terms, a high-quality template and a brief advisor review may be sufficient. For Series A and later rounds, M&A transactions, or any deal with complex governance provisions, non-standard liquidation preferences, or participating preferred, engaging experienced counsel is strongly recommended. The legal fee for a term sheet review ($500–$2,000) is minor relative to the economic impact of accepting unfavorable anti-dilution or liquidation terms on a multi-million-dollar deal.

Both instruments give early investors the right to receive equity in a future priced round. A convertible note is a debt instrument with an interest rate and a maturity date — if the company does not raise a qualifying round before maturity, the note becomes repayable. A SAFE (Simple Agreement for Future Equity) has no interest accrual and no maturity date, making it cleaner for very early-stage companies. Both typically include a valuation cap and a conversion discount. SAFEs are more founder-friendly; convertible notes give investors a repayment fallback.

The four provisions with the greatest long-term economic impact for founders are: (1) option pool sizing inside versus outside pre-money valuation; (2) participating versus non-participating liquidation preference; (3) the scope and dollar thresholds of investor protective provisions; and (4) the breadth of the anti-dilution formula. Board composition is the most important governance term — once an investor controls the board, they can influence hiring, acquisitions, and future financing decisions regardless of economic ownership percentage.

Yes. Term sheets are commonly used to document the principal terms of M&A acquisitions, joint ventures, strategic partnerships, licensing deals, and commercial real estate transactions before definitive agreements are drafted. The structure and binding provisions are similar across contexts, though the substantive economic terms differ. For acquisitions, the term sheet typically covers purchase price, consideration type (cash, stock, or earnout), representations and warranties scope, and conditions to closing.