# Term sheet

> A term sheet is a short document setting out the main terms on which an investor proposes to invest: the amount, valuation, type of security, investor rights such as a board seat and pro rata, the liquidation preference and the conditions to closing. Most of a venture term sheet is not legally binding, though clauses such as confidentiality and exclusivity usually are. The binding deal is made later in the definitive documents.

Source: https://delsivo.com/glossary/term-sheet · Updated 2026-11-06

## Key takeaways

- A term sheet is an outline; the definitive agreements are the deal.
- Economics (price, preference) and control (board, consents) are the two halves.
- A signed term sheet does not guarantee closing.

## What a term sheet covers

- Economics: amount raised, pre-money or post-money valuation, option pool size, liquidation preference.
- Control: board composition, protective provisions that need investor consent, information rights.
- Future rounds: pro rata rights, anti-dilution protection.
- Process: exclusivity or no-shop period, confidentiality, conditions to closing, legal fees.

## An example term: liquidation preference

A fund invests $2 million for preferred shares with a 1x non-participating liquidation preference. If the company is sold, the fund first receives its $2 million back, or converts to common shares and takes its percentage of the proceeds, whichever pays more. In a small sale the preference protects the fund; in a large one it makes no difference.

## Where the term sheet fits in a fund's process

The term sheet follows the committee's decision and is followed by confirmatory diligence and the definitive documents. In the United States many priced rounds start from model documents published by the NVCA, such as the Stock Purchase Agreement and Investors' Rights Agreement. Term sheet and closing tracking in Delsivo is planned for a later release.

## Common confusions

- A term sheet is not a [SAFE](https://delsivo.com/glossary/safe-note). SAFE rounds often skip a term sheet and sign the SAFE directly.
- Pre-money and post-money valuation differ by the new money invested, which changes ownership.
- "Non-binding" does not mean free to ignore: breaking exclusivity or confidentiality can have consequences.

## Frequently asked questions

### Is a term sheet legally binding?

Mostly not. Clauses such as confidentiality, exclusivity and sometimes costs are usually written to bind; the investment terms bind only in the signed definitive documents.

### Who drafts the term sheet?

Usually the lead investor, then negotiated with the founders and their lawyer.

### What is a no-shop clause?

A promise by the company not to seek or negotiate other investment offers for a set period after signing the term sheet.

## Sources

- [NVCA: Model legal documents](https://nvca.org/model-legal-documents/) (checked 2026-11-06)

## Related pages

- [Pro rata rights](https://delsivo.com/glossary/pro-rata-rights)
- [Lead investor](https://delsivo.com/glossary/lead-investor)
- [Dilution](https://delsivo.com/glossary/dilution)
- [Cap table](https://delsivo.com/glossary/cap-table)