Early-Stage Term Sheet Template & Annotated Guide
A term sheet is a non-binding statement of intent (aside from confidentiality and exclusivity clauses) — but its terms shape the definitive agreement that follows. Below are the most common clauses and why they matter.
This content is for informational purposes only and is not legal advice. Always have a lawyer review a term sheet before signing.
1. Investment Amount & Valuation
| Term | Description |
|---|---|
| Pre-money valuation | Company value before the investment |
| Post-money valuation | Pre-money + investment amount |
| Price per share | Post-money valuation ÷ total shares outstanding |
2. Type of Stock
Investors typically receive preferred stock, which carries protections like liquidation preference, voting rights, and information rights. Founders and employees typically hold ordinary/common stock.
3. Liquidation Preference
If the company is sold or liquidated, the investor is paid back their investment (typically 1x) before other shareholders. Non-participating preferred is generally more founder-friendly than participating.
4. Anti-Dilution Protection
Protects investor ownership if the company later raises at a lower valuation (a "down round"). Weighted average is more balanced for founders than full ratchet.
5. Vesting
Standard structure: 4-year vesting with a 1-year cliff, followed by monthly or quarterly vesting.
6. Board Composition
The post-investment board structure — e.g. 2 founder seats, 1 investor seat, 1 independent.
7. Pro-Rata Rights
The investor's right to invest in future rounds to maintain their ownership percentage.
8. Information Rights
The company's obligation to provide regular financial reports to the investor.
9. No-Shop / Exclusivity
A commitment not to negotiate with other investors for a set period (typically 30-60 days) — one of the few genuinely binding clauses.
10. Expiration
How long the term sheet stays valid (typically 2-4 weeks).
Checklist: Questions to Ask When Reviewing a Term Sheet
- What's the liquidation preference multiple — participating or non-participating?
- Which anti-dilution method applies — full ratchet or weighted average?
- Do founders retain board majority?
- Does vesting apply to existing founder shares (reverse vesting)?
- Is the no-shop period reasonable?
Download the annotated term sheet template (PDF) →
Frequently Asked Questions
Is a term sheet legally binding?
Mostly no — economic terms like valuation and liquidation preference are typically non-binding, while confidentiality and no-shop clauses usually are.
How long does it take to go from term sheet to closing?
Typically 4-8 weeks for early-stage rounds, depending on how much due diligence and legal documentation remains.