Term sheet

How it works

The term sheet is the negotiation artifact. Once signed, the term sheet is followed by 4–8 weeks of due diligence and legal drafting before the actual investment closes. Standard term sheets from major firms (the NVCA model and Y Combinator's safe-related agreements) are starting points; investors negotiate on valuation, board structure, liquidation preference, anti-dilution, and protective provisions.

Related terms

• Liquidation preference
  A liquidation preference is the right of preferred shareholders to get their money back (often a multiple of it) before common shareholders see anything in a sale or liquidation.
• Anti-dilution protection
  Anti-dilution protection adjusts an investor's share price downward if the company later raises at a lower valuation (a 'down round'), preserving their economic position.
• Pro-rata rights
  Pro-rata rights give an existing investor the right (but not the obligation) to maintain their ownership percentage by buying their share of any new financing.
• Due diligence (DD)
  Due diligence is the investigation an investor conducts before finalizing an investment — covering legal, financial, technical, and customer references.