A term sheet is a mostly non-binding summary of the economics and governance of a priced financing—what the investor pays, what they own, and how the board and protections will work—before lawyers write the definitive documents. It is not the close. It is the agreement about what the close should say.
This page answers what is a term sheet, term sheet example fields founders actually negotiate, and how an NVCA term sheet is usually read. Flux’s context is \$250K–\$5M, pre-seed through Series A. Companion reads: SAFE vs convertible note, what is a SAFE note, pre-seed funding, and what is a pitch deck.
The short definition
What is a term sheet? A short document (often 5–10 pages, sometimes a few) that lists valuation, security type, option pool, liquidation preference, board seats, protective provisions, and a handful of other rights. Most provisions are non-binding except confidentiality, exclusivity (“no shop”), and sometimes expense reimbursement. The binding work happens in the stock purchase agreement and charter.
Founders who treat the term sheet as “just a formality” discover the formality in the first board fight. Founders who treat it as the entire relationship discover that culture still has to be lived monthly.
Term sheet example: the fields that matter
This is a term sheet example as a table, not a downloadable template. Steal the checklist.
| Field | What it means | What to watch |
|---|---|---|
| Pre-money / post-money | Company value before and after the new cash | Pool refresh math lives here |
| Amount raised / security | Check size and share class (usually preferred) | Who is leading vs filling |
| Option pool | Shares reserved for hires | Whether the refresh comes out of founder ownership pre-money |
| Liquidation preference | Who is paid first in a sale | 1x non-participating is common; participating changes outcomes |
| Anti-dilution | Protection if a later round prices lower | Weighted average vs full ratchet |
| Board | Seats for founders, investors, independents | Control vs advice |
| Protective provisions | Investor vetoes on major actions | Length of the list is a culture tell |
| Information rights | What you must send, and how often | Reasonable vs surveillance |
| Pro-rata / super pro-rata | Rights to buy in later rounds | Reserves and signaling |
| Founder vesting | Remaining vesting, cliffs, acceleration | Refresh vs rewrite |
An NVCA term sheet (National Venture Capital Association model) is the industry’s shared dialect for many of these fields. It is a starting point, not a verdict. Counsel should mark it up against *your* facts—especially in hard tech, where milestone-based closings and capital-call mechanics sometimes appear.
Binding vs non-binding
Most economic and governance terms are agreements in principle. The no-shop is usually binding for a defined window: you stop shopping the round while documents are drafted. Breaking a no-shop to chase a slightly higher term sheet is how founders earn a reputation they cannot spend.
If you are still on SAFEs and have not reached a priced chapter, you may not need a term sheet yet. You need a clean stack—what is a SAFE note—and a process that matches the chapter on pre-seed funding.
How a term sheet is negotiated (without theatrics)
1. Lead conviction first. A term sheet from a follower is a suggestion. A term sheet from a lead is a process. 2. Economics, then control. Valuation arguments that ignore board and prefs are incomplete. 3. One mark-up pass with counsel. Iterating clauses in email for sport burns the no-shop clock. 4. Syndicate only after the lead’s sheet is real.
Flux would rather see a clean 1x non-participating sheet with an adult board than a higher headline that hides participating prefs and a veto list that runs the company.
NVCA term sheet, in practice
The NVCA forms exist so counsel is not inventing a language every round. Founders should still ask:
- Is the option pool refresh pre-money?
- Is the preference participating?
- Which protective provisions are actually used versus copied?
- What happens to founder vesting on termination vs change of control?
If your lawyer cannot explain a clause in one spoken paragraph, do not initial it because “it’s standard.” Standard is a starting distribution, not a moral argument.
Flux’s term-sheet posture
We invest pre-seed to Series A. At pre-seed we are often on a SAFE and the term sheet is a later chapter. At seed and A we expect the sheet to match the evidence: if the company is still buying truth, a Series A sheet with growth-stage control is a mismatch.
Hard-tech and manufacturing deals may need extra language around capital equipment, IP assignment from labs, and information rights that include technical packs. That is diligence, not hostility.
When the map is crisp, apply.