What Is a Term Sheet? Key Terms, Example & Template (2026)

You've spent months pitching. Finally, an investor says yes and sends you a term sheet. Most founders look at one number, the valuation, and skim the rest. Don't. The other clauses decide how much of it you actually keep. They decide who runs your board. And they decide what you get if the company sells for less than everyone hoped. Below we explain every clause in plain English, show what's normal in 2026, and give you a free template to download.

A term sheet is a short, mostly non-binding document that sets out the price and terms of an investment before lawyers write the final contracts. It says what the investor pays, what they get and how much say they have in your company. Signing it doesn't close the round. It starts the work to close it.

What does a term sheet include?

Every term sheet covers two things: money and control. The money terms say what the investor pays and what they get back if you sell. The control terms say who sits on your board and what investors can block. On top sit a few rules for the deal itself, like the no-shop.

Here's every clause you're likely to see in a VC term sheet. For each one: what it means in plain English, what's normal in 2026, and when to push back.

Term sheet template and example (free download)

A term sheet is usually a few pages of short clauses, not a long contract. In the US most follow the NVCA term sheet; in the UK many follow the BVCA summary of terms. Our sample term sheet below fits on one page. Fill in the brackets, then check each line against the notes in the table.

Here's the same template as a table, with what to check on each line:

Raising in the UK?

In the UK, the same document is usually called a summary of terms. Many rounds use the BVCA model documents: a subscription agreement, a shareholders' agreement and new articles. One UK twist. If your investors want SEIS or EIS tax relief, their shares can't get paid first if the company is wound up (HMRC). So find out who needs the relief before you agree any preference.

Which parts of a term sheet are binding?

Most of a term sheet isn't legally binding. Either side can still walk away. But a few clauses bind the moment you sign: confidentiality, the no-shop (you promise not to talk to other investors for a while), who pays the legal fees and which law applies. Read those ones twice.

The no-shop is the one that can really hurt. While it runs, you can't take calls from other funds. If the deal falls apart in week five, your other investors may have moved on. So ask for a clear end date, and ask the investor to finish their checks inside it.

What are the economic terms in a term sheet?

The economic terms decide who gets how much money, and when. The valuation is the headline. But the option pool, the liquidation preference, dividends and anti-dilution can move more money than a few million on the price. A high price with tough terms can be worth less than a lower, clean offer.

Valuation and the option pool

The term sheet gives a pre-money valuation. That's what your company is worth before the new money comes in. Add the new money and you get the post-money valuation. The investor's share is their money divided by the post-money. Our post-money valuation guide shows the maths step by step.

Now the catch. Investors want an option pool, a block of shares set aside for future hires. And they usually want it carved out of the pre-money. That means you and the other existing shareholders pay for it, not the new investor. Here's what that does to a $20M pre-money:

Liquidation preference

This decides who gets paid first when the company is sold. With a 1x preference, the investor gets their money back before anyone else gets anything. With 2x, they get double. If you sell for a lot, it barely matters, because investors switch to ordinary shares and take their percentage. If you sell for a little, it can leave founders with nothing.

The good news: 1x is the norm. Cooley found it in 95.8% of the deals it worked on in Q2 2026. The order in line matters too. A senior preference means the newest investor gets paid before earlier ones. That showed up in 16% of Series B and later rounds in the first half of 2026 (Wilson Sonsini). In the rest, investors stood in line together.

Participating vs non-participating preferred

Non-participating means the investor picks one: their money back, or their percentage. Participating means they get both: first their money back, then their percentage of whatever is left. It's rare now, at 3% of preferred share rounds in the first half of 2026 (Wilson Sonsini). But when it shows up, it costs you real money. Say an investor puts in $5M for 20% of your company:

Dividends and redemption

Startup dividends are usually paid only if the board declares them. In a growing startup, the board almost never does, so they don't matter much. Watch out for dividends that build up every year instead. They pile up quietly and get paid out before you when the company sells. Cooley saw them in 3% of its Q2 2026 deals.

Redemption lets investors make the company buy back their shares after a few years. It turns up a little more often in the same data. At seed and Series A, say no.

Anti-dilution

Anti-dilution protects investors if your next round is priced lower than theirs, a so-called down round. It gives them extra shares to make up for it. There are two versions. The normal one is called broad-based weighted average. It's the market standard, and the usual pick in deals built on the NVCA model documents. It gives investors a small top-up. The harsh one is full ratchet. It reprices their whole investment at the new, lower price, however small the down round is.

Here's what each one does to the same down round:

With full ratchet, the Series A investor ends up with twice as many shares. With weighted average, about a tenth more. Every extra share they get comes out of the founders' and employees' stakes.

Pay-to-play

Pay-to-play says: if you're an existing investor and you don't put money into the next round, you lose some of your rights. It mostly appears when markets are tough. Cooley found it in 8.4% of its Q2 2026 deals. If your lead investor asks for it, they're telling you they expect a hard next round.

What are the control terms in a term sheet?

Control terms decide who calls the shots after the money comes in. They include board seats, investor vetoes, forced sales and founder vesting. These terms stay with you until your next round rewrites them. So they matter as much as the price, even though founders often read them last.

Board seats

At seed and Series A, founders usually keep control: 2 founder seats and 1 investor seat. Sometimes an independent director joins later. Check how that person gets picked. If the investor effectively chooses them, your balanced board isn't balanced anymore.

Investor vetoes (protective provisions)

These are the decisions investors can block. The normal list is short: changing their rights, issuing new shares that rank above theirs, selling the company and changing the board size. That's fine. Push back if the list reaches into running the business, like approving your budget, your hires or your everyday contracts.

Pro rata rights

Pro rata means an investor can put more money into your next round to keep their percentage. That's standard for the bigger investors. Super pro rata, the right to buy more than their share, is a different story. It can put off your next lead investor, who wants room for their own cheque.

Drag-along, first refusal and co-sale

Say a buyer wants your whole company. Most shareholders say yes, but one small shareholder says no. A drag-along clause means they have to sell too. That's fair. What you need to check is who gets to decide. It should take the board and the ordinary shareholders, which includes you, not the investors alone.

First refusal and co-sale are about founders selling their own shares. First refusal means the company and the investors get first dibs, at the same price. Co-sale means investors can sell some of their shares alongside yours. Both are standard.

Information rights

This sets what reports investors get. Normal is yearly and quarterly accounts plus the budget, for the bigger investors. Monthly reports for everyone sounds harmless. It isn't, because you'll be making them for years. Keep it to what your board already sees.

Founder vesting

Investors sometimes ask founders to earn their shares again over a few years. The idea: if a founder quits early, they don't walk away with everything. Ask for credit for the time you've already put in. And ask for double-trigger acceleration: if the company is sold and you lose your job, your shares vest straight away. Our equity compensation guide explains vesting in more detail.

What terms are standard in 2026?

Terms in 2026 are good for founders. Almost every deal has a 1x non-participating preference, weighted average anti-dilution and no dividends that build up. Tough terms like participation, senior preferences and pay-to-play spread in 2022 and 2023. Now they show up in only a small share of deals.

Big law firms publish the terms they see across hundreds of venture deals, and right now the picture is clear. In Cooley's data for the second quarter of 2026, which covers 166 financings, 95.8% of deals had a 1x liquidation preference. Non-participating preferred was just as common. Wilson Sonsini's numbers for the first half of 2026 show the same thing at later stages: participating preferred and senior preferences have both become rare. Up rounds made up 95% of later-stage deals in the second quarter, the highest share since 2021. Put simply, companies with real revenue have the upper hand again. If you're raising now, treat anything beyond a clean 1x non-participating deal as something to negotiate, not something you have to accept. One caveat: both datasets cover US deals done by those firms, so smaller rounds and rounds outside the US can come with tougher terms.

How do you compare two or three term sheets?

Don't just pick the highest valuation. In our work on 600+ successful rounds since 2014, the highest headline often isn't the best offer. Work out each offer's real valuation after the option pool. Check what you'd get in a realistic sale. Compare the board and the vetoes. Then ask who you'd rather work with for years.

Getting more than one offer is normal when the process is run well. In a $4M pre-seed round we worked on, the founders got 3 term sheets before they had a product or any traction. The round closed at a $40M valuation. Our $10M Series A for a beverage company also ended with 3 term sheets on the table.

Here's how the higher price can still be the worse deal. Two investors offer the same $6M:

Offer B looks $5M better. After the bigger option pool, it's less than $1M ahead. Then participation takes about $3.6M more from everyone else in a $50M sale, and the board tilts toward the investor. For founders, Offer A wins in most outcomes.

And some things no table shows. Who is the partner who'll sit on your board? Does the fund have money left for your next round? How likely is each investor to actually close?

How do you negotiate a term sheet?

Negotiate a term sheet with other offers on the table, a short priority list and a good lawyer. We've seen founders win a higher price, then give it back through the option pool and the board. So fight for the terms that move money or control, take the standard wording on the rest, and don't argue over every comma.

Your leverage comes from the process, not the pitch. A raise takes 35–40 investor meetings on average (Waveup DocSend data). Plan it so offers arrive around the same time. A second term sheet is the best negotiating argument you'll ever have.

Where we'd spend your negotiating energy, in this order:

1. Option pool — tie it to a real hiring plan for the next 12–18 months. If the investor won't move on price, ask for part of the pool to be added after the round.
2. Liquidation preference — hold the line at 1x non-participating. Give a little on price before you give on structure.
3. Board — keep a founder majority at seed and Series A, and agree how any independent gets picked.
4. Vetoes — stick to the standard list. No vetoes over your budget or your hires.
5. Founder vesting — get credit for time served, plus double-trigger acceleration.
6. No-shop and legal fees — a fixed end date, and a cap on the investor's legal bill.

We review term sheets and negotiate these points on the founder's side as part of a fundraising engagement, together with your lawyer. Your lawyer still writes and signs off the final documents.

What happens after you sign a term sheet?

Signing a term sheet doesn't mean you have the money. It starts the closing process. The investor checks your company in detail. The lawyers turn the term sheet into the final contracts. Then the money arrives at closing. Until then, the investor can still walk away or ask to change the terms.

1. Due diligence — the investor checks your cap table, contracts, IP, accounts and legal setup. Carta's guide puts this at 4 to 6 weeks for a Series A.
2. The final contracts — in the US, usually the 5 standard NVCA documents. The main ones are the stock purchase agreement and the investors' rights agreement.
3. SAFEs and notes convert — any SAFEs or convertible notes turn into shares in this round. That can dilute you more than you expected. Our guides to the SAFE and the convertible note show how.
4. Closing — everyone signs, the board and shareholders approve, and the money lands. Some rounds have a second close for investors who join late.

Diligence is where signed deals slip or get repriced. The usual reasons are a messy cap table, missing IP assignments, or numbers that don't match the deck. So get your data room ready early. We measured this in an internal study based on 48 months of client work. Data rooms built around investors' diligence lists cut Series A diligence time by about 30%. Our due diligence checklist shows what to prepare.