A term sheet is a short, largely non-binding document that lays out the key terms of a proposed investment before the lawyers draft the full legal agreements. It covers valuation (pre-money and post-money), the investment amount, share class, liquidation preference, anti-dilution protection, board composition, voting rights, pro rata rights, and the option pool. Signing one typically triggers an exclusivity period during which you cannot negotiate with other investors while due diligence runs, so treat the terms as real commitments even though most of the document is not legally enforceable. Have a startup lawyer review any term sheet before you sign it.
By Pitchkit · Last Updated October 10, 2026
Beyond the headline valuation, a term sheet spells out the investment amount and share class, the liquidation preference (usually 1x non-participating), anti-dilution protection (usually broad-based weighted-average), board seats and voting rights, pro rata rights for future rounds, and the required option pool size.
A term sheet is typically issued after a lead investor has done initial diligence and decided to move forward. Signing it kicks off an exclusivity period, often 30 to 60 days, during which the company agrees not to shop the deal to other investors while full due diligence and legal documentation are completed.
A term sheet offers $4,000,000 at a $16,000,000 pre-money valuation ($20,000,000 post-money), 1x non-participating liquidation preference, broad-based weighted-average anti-dilution, one board seat for the lead investor, and a requirement to expand the option pool to 15% pre-money. A founder who focuses only on the $16,000,000 headline number and skips the pool and preference terms can end up with materially worse economics than a founder who negotiates a $14,000,000 valuation with a smaller pool expansion and standard preference terms.
1x non-participating liquidation preference and broad-based weighted-average anti-dilution are the market standard at every stage from seed through Series A and beyond. Board seats for investors typically start at Series A rather than seed, where boards are often just the founders plus one investor observer.
Fixating on valuation while skimming past liquidation preference, anti-dilution, and option pool size, all of which can matter more to your actual outcome than the headline number.
A high valuation paired with participating preferred and aggressive full-ratchet anti-dilution can leave founders worse off than a lower valuation with standard 1x non-participating preferred and weighted-average anti-dilution. Model the full term sheet instead of just the price.
Valuation cap: the maximum valuation at which a SAFE or note converts. Discount: a percentage off the next round price for SAFE and note holders.
Pre-money valuation is the company value before the investment; post-money is pre-money plus the investment. $10 million pre-money plus $2 million invested gives $12 million post-money and 16.7 percent to the investor.
Liquidation preference decides who is paid first in an exit. 1x non-participating is standard. Participating preference lets investors take their money back and then also share in what remains, which is a red flag for founders.
Anti-dilution protects investors in a down round. Weighted average is standard; full ratchet reprices all earlier shares to the new lower price and is very punitive.
Pro rata rights let an investor keep their percentage by investing in later rounds. The option pool is equity reserved for hires, typically 10 to 20 percent at Series A, usually carved out of the pre-money.
Vesting is the schedule on which founders or employees earn equity; the standard is 4 years with a 1-year cliff. Board seats, protective provisions, drag-along and information rights round out the governance terms.
High priority: pre-money valuation, option pool size and carve-out, board composition, and the liquidation preference multiple.
Medium priority: the type of anti-dilution, the scope of protective provisions, and drag-along thresholds.
Usually standard, accept the defaults: information rights, registration rights, and right of first refusal.
Turn your metrics into a pitch narrative investors can follow.
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