Term Sheet
A non-binding document outlining the key terms of a proposed investment deal.
Definition
A term sheet is a document (typically 3-8 pages) that outlines the major terms of a proposed investment: valuation, investment amount, liquidation preferences, board composition, voting rights, anti-dilution provisions, and other key conditions. Term sheets are generally non-binding except for confidentiality and exclusivity clauses. They serve as the basis for negotiation before lawyers draft definitive legal agreements.
The two most important term sheet elements are valuation and control provisions (board seats, voting rights, protective provisions). Founders often over-index on valuation and under-index on control terms.
Why it matters for founders
A term sheet defines the economics and governance of your fundraise. Bad terms can limit your future options, give investors outsized control, or create misaligned incentives. Understanding every clause before signing is essential.
Example
A typical seed term sheet: $2M investment, $8M pre-money valuation, 1x non-participating liquidation preference, standard anti-dilution, one investor board seat, standard protective provisions, 20% option pool. The whole negotiation might take 1-2 weeks.
How Foundra helps
Foundra's fundraising resources help founders understand term sheet components so they can negotiate from an informed position rather than accepting unfavorable terms.
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Related terms
Due Diligence
The investigation process investors conduct before committing to an investment.
Pre-Money Valuation
The value of your startup before receiving new investment.
Liquidation Preference
An investor's right to get their money back before other shareholders in an exit event.
Anti-Dilution
A protection clause that adjusts an investor's share price downward if the company raises at a lower valuation.