Venture capital term sheet

curl -X POST https://dealroom.todo.law/api/v1/agent/contracts \
  -H "Authorization: Bearer drk_YOUR_KEY" \
  -H "Content-Type: application/json" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "contractType": "TERM_SHEET",
    "governingLaw": "ENGLAND_WALES",
    "language": "en",
    "party": {
      "legalName": "Your company"
    },
    "counterparty": {
      "legalName": "The other company"
    },
    "terms": {
      "round-amount": "10000",
      "pre-money-valuation": "10000"
    },
    "inline": "md"
  }'

What it is and when it is used

A term sheet summarises the principal terms of a proposed preferred share financing round (for example, a Series A) before lawyers draft the definitive documents. It covers the round's economics, governance, investor rights and exit terms. The skill is based on the US NVCA model documents (October 2025 refresh) and the UK Private Capital (formerly BVCA) model documents (February 2025 edition), with a native layer for the Spanish limited company (S.L.).

It is meant for a priced round, with a set or implied valuation and a new class of preferred shares. A convertible loan is a different instrument and has its own convertible note skill. Once the terms are agreed, they are carried into the definitive documents, such as the shareholders' agreement.

Who signs it and in which role

• The Company, which raises the money.
• The Lead Investor, who leads the round and negotiates its terms.

The parties enter the round amount and the pre-money valuation (both required), and optionally the closing date, the series designation (A by default), the minimum and maximum of a rolling round, the milestones and number of tranches (2 by default), the original issue price, the option pool percentage, the liquidation multiple (1 by default), the debt level above which investor consent is needed, the dividend rate (8% by default) and a cap on the reimbursed legal fees (25,000 dollars by default).

Key clauses

The skill negotiates 15 clauses. All are required except registration rights.

Round size and pre-money valuation

The round can close once for a fixed amount, roll between a minimum and a maximum, or be paid in tranches released on milestones. The valuation can be a fixed pre-money figure, a figure that includes an option pool increase, or a target ownership percentage for the investor with the valuation implied.

Liquidation preference

1x non-participating, 1x participating up to a total return cap, or 2x non-participating.

Anti-dilution protection

Broad-based weighted average (the NVCA default), narrow-based weighted average, which the skill drafts on the narrowest base (outstanding preferred only) and labels as a minority, investor-favourable position, or full ratchet, which resets the price to the lowest new issue price and is rare.

Board composition

A founder-controlled board with one investor seat, a balanced board with an independent director as tiebreaker, or an investor-controlled board.

Protective provisions

The standard NVCA or BVCA list of fundamental actions needing investor consent, an enhanced list reaching into hiring, contracts and capital expenditure, or a minimal list limited to charter changes, senior securities and liquidation events.

Employee option pool

10, 15 or 20 percent, created pre-money.

Dividend rights

Non-cumulative dividends with priority when the board declares them, cumulative dividends at a fixed rate, or no dividend preference, with equal sharing on an as-converted basis.

Founder vesting

Four-year vesting with a one-year cliff on the founders' existing shares, vesting with credit for time already served and double-trigger acceleration, or no new vesting, which the skill notes is unusual in a priced round.

Drag-along and tag-along

A drag-along requiring the board, a majority of ordinary shares and a majority of preferred shares, with standard protections and tag-along for all holders; a founder-protective drag with a supermajority, a fair-value floor set by an independent expert and cash consideration only; or a drag triggered by a majority of the preferred alone.

Right of first refusal and co-sale

On a founder transfer, the company and then the investors may buy first, and investors may sell alongside; a right of first refusal with no co-sale; or a lock-up period followed by both rights.

Redemption rights

No redemption, which the skill calls the market standard at early stage, or an investor put from the fifth anniversary, always subject to the legal limits on paying out capital.

Registration rights (US financings)

Full demand, short-form and piggyback rights, or piggyback rights only. Available for California only.

Exclusivity and binding provisions

A no-shop of 30 days, 60 days, or none; and a separate clause that sets which terms bind (standard, expanded to key economics, or none) and the governing law.

The standard terms add conversion to ordinary shares, as-converted voting, information and pro rata rights for major investors, invention assignment agreements for staff, D&O insurance and the company's payment of the lead investor's legal fees up to the cap.

What the two sides usually negotiate

When the two sides disagree, Dealroom proposes the balanced positions in the skill: a single close, a fixed pre-money valuation or a target ownership, broad-based weighted average anti-dilution, a balanced board, the standard protective provisions, a 15 percent pool, standard four-year founder vesting, the standard drag-along and tag-along, the standard right of first refusal and co-sale, 30-day exclusivity and standard binding terms.

Some clauses have no neutral option. On liquidation preference and on redemption, the options closest to the middle (1x non-participating, no redemption) lean slightly to the company. On dividends, a non-cumulative dividend and no preference are equally close to the middle, both leaning slightly to the company. On registration rights, the full package is closest to the middle and leans slightly to the investor. The sharpest disagreements are full ratchet, an investor-controlled board and a drag triggered by the preferred alone, which strongly favour the Lead Investor.

Jurisdictions and languages Dealroom supports for it

Dealroom offers the term sheet for California, England and Wales and Spain, in English or Spanish.

• California: the term sheet points to Delaware or California law, the courts of the county of the company's principal place of business and the five NVCA definitive forms. Founder vesting notes the 30-day section 83(b) election.
• England and Wales: the term sheet uses the Companies Act 2006, with statutory pre-emption rights disapplied for the financing, and the UK Private Capital definitive documents. Registration rights are blocked.
• Spain: the term sheet assumes an S.L. A cash round is a capital increase approved by the general meeting, in which the existing shareholders' statutory pre-emption right arises unless the meeting excludes it; it is executed before a notary and registered. Each rolling close or tranche needs its own resolution. Preferences are created as privileged participaciones in the articles plus the shareholders' agreement. Founder vesting works through cross purchase options among shareholders, not company buybacks. Disputes go to the courts of Madrid. Registration rights are blocked.

Common mistakes

• Unclear binding terms. The skill warns that clearly marking what binds prevents disputes about enforceability.
• Looking only at the headline valuation. A pre-money option pool lowers the effective valuation and falls entirely on the founders.
• Assuming non-binding means no risk in Spain. Pre-contractual liability can arise from bad-faith negotiation.
• Using the convertible loan route for a Spanish cash round. A priced round is a cash capital increase, with pre-emption rights, not a conversion of debt.
• Keeping drag and transfer terms only in the shareholders' agreement in Spain. A side agreement binds only its signatories; such terms should also appear in the articles where they can be registered.
• Importing US registration rights into an English or Spanish deal. They have no equivalent there.