Written by — Co-Founder, Expert Sapiens
Reviewed June 2026
Fundraising & Equity
What Is Term Sheet?
Definition
A term sheet is a non-binding document that outlines the key terms and conditions of a proposed investment — setting the framework for the final legal agreements in a funding round.
A term sheet covers the core economics and governance of an investment: the pre-money valuation, amount being raised, type of security (preferred shares, SAFE, note), liquidation preferences, anti-dilution provisions, voting rights, board composition, and pro-rata rights for future rounds. While non-binding on the investment itself, some clauses like exclusivity and confidentiality are binding. Understanding the term sheet is critical — seemingly small differences in liquidation preference structures or anti-dilution mechanics can dramatically affect founder and employee payouts in an exit scenario. Term sheets from institutional investors are written to favor the investor and benefit from careful legal review.
Why it matters
Most founders focus on the valuation number and overlook the governance and economics terms that matter just as much in a liquidity event. A startup attorney with fundraising experience can translate the term sheet into plain English, flag non-standard terms, and help you negotiate before you've signed and lost leverage.