TODO.LAW

Venture capital term sheet

A term sheet sets out the main terms of a proposed equity financing round between a company and its lead investor before the final legal documents are drafted. Most of it is non-binding; Dealroom lets both sides negotiate each term and decide which provisions bind.

Jurisdictions
California, England and Wales, Spain
Contract languages
English, Spanish

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 protective provisions. The catalogue describes it as 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 S.L.

Who signs it and in which role

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

Key clauses

Round size and pre-money valuation

The round can close once for a fixed amount, roll within a minimum and maximum, or be paid in tranches released on milestones. You enter the round amount and, where relevant, the minimum, maximum, milestones and number of tranches. 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.

Liquidation preference, anti-dilution and dividends

The preference can be 1x non-participating, 1x participating with a cap, or 2x non-participating. Anti-dilution can be broad-based weighted average, narrow-based weighted average, or full ratchet. Dividends can be non-cumulative when declared, cumulative at a fixed rate, or carry no preference.

Board and protective provisions

The board can be founder-controlled, balanced with an independent director, or investor-controlled. Investor consent rights can follow the standard model list, an enhanced list reaching into operations (hiring, contracts, capital expenditure), or a minimal list.

Employee option pool

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

Exclusivity and binding provisions

The no-shop period can be 30 days, 60 days, or none. A separate clause sets which terms bind and the governing law.

Standard terms add conversion to common shares, as-converted voting, information and pro rata rights for major investors, registration rights, a right of first refusal and co-sale, drag-along, four-year founder vesting with a one-year cliff, invention assignment agreements for staff, D&O insurance and capped legal expenses.

What the two sides usually negotiate

Dealroom proposes the balanced positions in the skill as the middle ground: a single close, a fixed pre-money valuation (or a target ownership), broad-based weighted average anti-dilution, a balanced board, standard protective provisions, a 15 percent option pool, 30-day exclusivity and standard binding terms. On liquidation preference, 1x non-participating sits closest to the centre. The sharpest disagreements are full ratchet and an investor-controlled board, which strongly favour the Lead Investor, and cumulative dividends or a 2x preference, which also favour the investor.

Jurisdictions and languages Dealroom supports for it

Dealroom offers the term sheet for California, England and Wales and Spain, in English or Spanish. The California version points to Delaware or California law and the NVCA document set. The England and Wales version uses the Companies Act 2006, with section 561 pre-emption rights disapplied. The Spanish version assumes an S.L.: a capital increase approved by the general meeting (article 301 LSC), notarised documents where required, Madrid courts, and investor protections enforced mainly through the shareholders' agreement.

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.
  • Underestimating the preference. The skill calls the liquidation preference the investor's most important downside protection.
  • Assuming non-binding means no risk in Spain. Pre-contractual liability can arise from bad-faith negotiation.
  • Copying US structures into an S.L. unchanged. Preferences and 2x multiples must not conflict with mandatory LSC rules.

Frequently asked questions

Is a term sheet legally binding?

Mostly not. The usual position is that only exclusivity, confidentiality and expenses bind, and the rest is a statement of intent. The agreement also offers making key economics binding, or a fully non-binding letter of intent. Under Spanish law, bad-faith negotiation can create liability even on non-binding terms.

What is a 1x non-participating liquidation preference?

On a sale or liquidation, investors first get their investment back once, or can convert to common shares and share pro rata, but cannot do both. It is the option closest to the middle in the skill; participating and 2x preferences favour the investor.

What does an option pool in the pre-money valuation mean?

The employee option pool is created before the investment, so existing shareholders, mainly founders, bear the dilution and the effective valuation is lower than the headline figure. The skill offers pools of 10, 15 or 20 percent, with 15 percent as the balanced choice.

Which anti-dilution protection is standard?

Broad-based weighted average, which the skill identifies as the default in the US model and as the balanced option. Narrow-based weighted average gives investors a larger adjustment, and full ratchet, which resets the price to the lowest new issue price, is rare and strongly investor-favoured.

Two ways to make it

Create it in Dealroom

Choose the jurisdiction and language, answer a few questions and negotiate each clause with the other side, or prepare it alone.

Start in Dealroom

Have your agent draft and negotiate it

Your AI agent can read the clause library and create the contract through the agent API or the MCP server. A short example:

MCP: list_templates (query: "TERM_SHEET"), get_template, create_playbook, initiate_negotiation.

Read the agent API guide
# 1. Read the clauses, options and the facts it needs
curl https://dealroom.todo.law/api/v1/agent/templates/TERM_SHEET \
  -H "Authorization: Bearer drk_YOUR_KEY"

# 2. Create the contract (clauses you leave out take the default option)
curl -X POST https://dealroom.todo.law/api/v1/agent/deals \
  -H "Authorization: Bearer drk_YOUR_KEY" \
  -H "Content-Type: application/json" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "schema": "dealroom.solo-intake/1",
    "contractType": "TERM_SHEET",
    "governingLaw": "ENGLAND_WALES",
    "language": "en",
    "dealName": "Example TERM_SHEET",
    "selectionPolicy": "defaults"
  }'

Drafting and negotiating are free.

Related contracts

This page explains how the contract usually works. It is general information, not legal advice.

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