Term sheet review

Valuation gets the attention, but a few other terms often matter more over the life of the company. Liquidation preference decides who gets paid first in a sale, and a multiple above 1x or a participating preference can take much of a modest exit. Board composition decides who controls the company. Protective provisions list what investors can veto. Option pool size, and whether it is counted before the money comes in, quietly changes your real valuation. Anti-dilution terms, pro rata rights and vesting on founder shares round out the list.

Off-market means a term is less founder-friendly than what investors usually accept at that stage and in that market. Common examples at seed and Series A are a liquidation preference above 1x, participating preferred, full ratchet anti-dilution, investor control of the board after an early round, or an unusually large option pool created before the investment. Knowing what is standard comes from seeing many deals, which is why a repeat founder or a venture lawyer who reads term sheets every week can spot problems quickly.

Mostly no. The economic and control terms are usually non-binding and only become final in the definitive documents, such as the stock purchase agreement and the amended charter. A few clauses are normally binding, typically confidentiality, a no-shop or exclusivity period, and sometimes who pays legal fees. Even so, signing a term sheet creates a strong expectation on both sides, and renegotiating afterward costs trust. That is why the review should happen before you sign, not during the drafting of the final documents.

Ideally both, because they catch different things. A venture lawyer checks the legal mechanics, how terms interact, and what will carry into the definitive documents, and you will need one to close the round anyway. An experienced founder or angel tells you how the terms play out in practice, which asks are worth pushing back on, and what the investor's reputation is when things go wrong. If budget is tight, get the lawyer on the documents and an experienced founder on the negotiation.