Getting a term sheet feels like the finish line. After months of pitching, someone finally wants to invest, and the first thing every founder looks at is the valuation. It's the number you'll share with your team, your co-founders and maybe the press.

But a term sheet is the opening move in a relationship that will likely last 7 to 10 years. The valuation tells you the price. The rest of the page tells you how much of the company you really keep, who makes the big decisions, what happens in your next round and who gets paid first if you sell. Two term sheets with the same valuation can lead to very different outcomes for founders.

This guide walks through the clauses that matter most, in plain language, with two simple examples. At the end you can download our full Term Sheet Checklist to use in your own negotiation.

A term sheet is a short document that sets out the main terms of an investment before the lawyers draft the final agreements. Most of it is usually non-binding: either side can still walk away. But some clauses typically bind you from the moment you sign, especially exclusivity (also called no-shop, which stops you from talking to other investors for a period) and confidentiality. Always confirm which is which with your lawyer.

It also matters what kind of deal you're doing. In a priced round, the company is valued today and investors buy shares. At pre-seed, many founders raise on a SAFE or a convertible note instead: no valuation is set now, and the money converts into shares later. The core questions differ, so know which one you're negotiating before you start.

The headline valuation only means something once you know how many shares it's divided by. Ask for the fully diluted numbers, which count every option and convertible as if it were already a share, and ask for the actual cap table after the round, not a verbal estimate.

The clause that most often changes the real price is the option pool: shares set aside for future employees. If the investor asks for a new pool to be created before their money comes in (pre-money), the pool comes entirely out of the founders' share.

A simple example. An investor puts in $2M at an $8M pre-money valuation. The post-money is $10M and the investor owns 20%. The term sheet also asks for a 10% option pool, created pre-money.

On paper the valuation is $8M. For the founders, the deal works like a $7M valuation. Ask for a pool sized to your real hiring plan for the next 12 to 18 months, not a round number.

Also ask whether there are side letters: separate agreements that give one investor extra rights not visible in the main term sheet.

Money is temporary; governance terms shape every major decision you'll make for years. Focus on four areas:

The liquidation preference decides who gets paid first, and how much, when the company is sold or wound down. It's the clause with the biggest impact on what founders and employees actually take home, and it comes in a few flavours:

A simple example. Same investor: $2M invested for 20%. Here's what happens in a modest $5M sale and a strong $50M sale.

In the small exit, a 2x preference leaves founders, employees and other common shareholders with just $1M out of $5M. That's why this clause deserves as much attention as the valuation itself.

While you're here, check two related terms: redemption rights, which can let an investor force the company to buy back their shares after a set period, and cumulative dividends, which build up every year and are usually paid before common shareholders at exit.