A term sheet is the short, bullet-point deal document that puts a proposed financing or acquisition into negotiable terms before the full legal paperwork. For a startup raising a priced round, it commonly sets the price, investment amount, security, investor rights, closing conditions, and other terms that will later be carried into definitive agreements. section 6.1 section 11.1.1
Getting one can feel like validation: a professional investor is signaling belief in the team, problem, market, and product. But it is not cash, and it is not the finish line. A signed term sheet still has to become a completed financing through diligence, documents, and closing. section 11.1 section 10.8
A clean seed term sheet
NewCo’s proposed Seed Series Preferred financing names the investors, targets $1 million in new cash, converts outstanding SAFEs, and sets a $7 million fully diluted pre-money valuation. It also sketches investor protections, liquidation treatment, future participation rights, closing conditions, and an acceptance deadline. The example is deliberately simple, but every item can affect founders. section 11.1.1 section 11.1.1
Use a term sheet as a negotiation map, not a document to skim:
- Seek competing lead investors when possible; competing sheets can improve price and other terms. section 11.1.1
- Have company counsel help shape the initial proposal rather than automatically accepting investor-dictated terms. section 11.1
- Read the effect of each provision on founders, especially multiple investment tranches, drag-along provisions, founder shares, and board observers. section 11.4
- Expect later rounds to add or change terms; a down round can dilute earlier holders through a cram-down. section 11.3
“Nonbinding” does not mean consequence-free. The core financing terms are generally intended for discussion until definitive agreements are signed, while provisions such as confidentiality and counsel expenses may be treated differently. Treat deadlines, diligence requirements, and every economic or control term as real negotiating terrain. section 11.1.1 section 11.4
