A term sheet is short, mostly non-binding and deceptively simple. Founders fixate on the valuation; experienced investors know the value is in the clauses around it. Here is what to actually read.
Economics
- Pre- vs post-money valuation — and where the ESOP pool is created (before or after the money changes your true dilution).
- Liquidation preference — 1x non-participating is founder-friendly; participating preferences “double-dip”.
- Anti-dilution — broad-based weighted average is standard; full-ratchet is punitive.
Control
- Board composition, and who effectively controls it.
- Reserved matters and investor veto rights.
- Protective provisions over future financing, sale and budgets.
Exit and future rounds
- Drag-along and tag-along rights.
- Pre-emption and pro-rata rights on future rounds.
- Founder vesting and lock-ins.
The rule of thumb
A slightly lower valuation with clean terms often beats a higher headline with a heavy preference stack and tight control. Model the exit waterfall before you sign — the number that matters is what you keep at exit, not the valuation in the press release.
We review term sheets and model the dilution and exit outcomes so you negotiate from understanding, not optimism. More on our equity practice →