# Term sheets **Author:** The Carta Team **Read time:** 6 minutes **Published date:** 11 July 2025 A term sheet outlines the key terms of a startup investor’s offer. Learn how to read an investor term sheet before your next fundraising round. ## Contents - [Term sheets](/content/uk/en/learn/startups/fundraising/term-sheets/#term-sheets/index.html) - [What is a term sheet?](/content/uk/en/learn/startups/fundraising/term-sheets/#what-is-a-term-sheet/index.html) - [When are term sheets used?](/content/uk/en/learn/startups/fundraising/term-sheets/#when-are-term-sheets-used/index.html) - [Term sheet examples: What’s included?](/content/uk/en/learn/startups/fundraising/term-sheets/#term-sheet-examples-what-s-included/index.html) - [Pricing terms](/content/uk/en/learn/startups/fundraising/term-sheets/#pricing-terms/index.html) - [Economic rights](/content/uk/en/learn/startups/fundraising/term-sheets/#economic-rights/index.html) - [Control rights](/content/uk/en/learn/startups/fundraising/term-sheets/#control-rights/index.html) ## What is a term sheet? A term sheet is a preliminary document outlining the key terms and conditions of a potential business agreement, typically used in [venture capital investments](/content/uk/en/learn/private-funds/venture-capital/index.html), [mergers and acquisitions](/content/uk/en/learn/startups/exit-strategies/mergers-acquisitions/index.html), [private equity deals](/content/uk/en/learn/private-funds/private-equity/index.html), and real estate transactions. It serves as the basis for future negotiations before drafting more detailed legal paperwork if the deal is pursued. For [early-stage startups](/content/uk/en/learn/startups/index.html), a term sheet is often the first step in raising capital during funding rounds, especially a [Series A](/content/uk/en/learn/startups/fundraising/series-a/index.html) and subsequent investments. When [raising funds for a startup](/content/uk/en/learn/startups/fundraising/index.html), the lead investor will use a term sheet to outline the key points of their offer to invest in a company. The term sheet establishes financial terms of the deal, including: - [**Pre-money vs. post-money valuation**](/content/uk/en/learn/startups/equity-management/private-company-valuations/pre-money-vs-post-money-valuations/index.html): The startup's valuation before the new investment and after, respectively. - **Total investment amount**: The amount of capital an investor commits to the company in exchange for equity. - [**Option pool size**](/content/uk/en/learn/startups/equity-management/option-pool/index.html): The amount of [company equity](/content/uk/en/learn/equity/index.html) allocated for future employees and service providers. - **Ownership structure**: How the new equity ownership will be reflected in the company’s [cap table](/content/uk/en/learn/startups/equity-management/cap-table/index.html). In addition to the financial terms, a term sheet also details: - **Economic rights**: Includes liquidation preferences, pro rata rights, and anti-dilution provisions. - **Control rights**: Includes provisions for voting rights, board seats, right of first refusal, and [drag-along rights](/content/uk/en/learn/private-funds/management/drag-along-rights/index.html). The term sheet is usually the first time an investor will formally declare their interest in investing in a company and serves as a starting point for negotiations. A term sheet typically includes clauses for confidentiality, exclusivity (no-shop clause), and good faith negotiation. The document is usually drafted with the assistance of legal counsel to ensure clarity, compliance, and [due diligence](/content/uk/en/learn/private-funds/management/deal-flow/due-diligence/index.html) with important terms. This prevents miscommunication and helps both parties determine if they want to move forward before incurring additional legal expenses to continue negotiations towards a definitive agreement. ## When are term sheets used? Term sheets are typically used when a startup is raising a round of financing at a specific valuation, known as a [priced round](/content/uk/en/learn/startups/fundraising/priced-rounds/index.html). During this type of fundraise, an investor exchanges money for [preferred stock](/content/uk/en/learn/equity/common-stock-vs-preferred-stock/index.html) in your company at a price per share determined by the valuation. Term sheets may be used during a [seed round](/content/uk/en/learn/startups/fundraising/seed-funding/index.html), but they are more common at the [Series A round](/content/uk/en/learn/startups/fundraising/series-a/index.html) and beyond. The [valuation](/content/uk/en/learn/startups/equity-management/409a-valuation/index.html) is one of the most important elements of a term sheet and distinguishes it from similar documents, such as SAFEs, which are used in earlier funding rounds when your company’s valuation is not yet known. A [SAFE (Simple Agreement for Future Equity)](/content/uk/en/learn/startups/fundraising/convertible-securities/safes/index.html) gives an investor the right to convert their investment into company shares in the future, once the valuation is known. Term sheets are also often used for SAFE or [convertible note rounds](/content/uk/en/learn/startups/fundraising/convertible-securities/index.html), but are used less frequently than for priced rounds because of the relative simplicity of SAFE and convertible note legal documents. ## Term sheet examples: What’s included? Along with setting the valuation for the company, a term sheet details the amount of the investment and detailed terms around the calculations of pricing for the preferred shares the investor will receive for their money. A term sheet also establishes the investor‘s rights. ### Pricing terms The offering terms may detail the following information: 1. The investor’s suggested pre-money valuation (how much the company was worth before the investment) or the post-money valuation (how much the company is worth with the new investment added) 2. The raise amount (how much they are investing) 3. The target size of the available [employee equity pool](/content/uk/en/learn/startups/equity-management/option-pool/index.html) (the portion of company shares reserved for issuance of stock options in new-hire grants or refresh, top-up, or retention grants) The option pool can significantly affect the price of company shares sold in the preferred stock round and can be used as a lever for investors to lower the price per share and [minimize future dilution](/content/uk/en/learn/startups/equity-management/share-dilution/index.html) (depending on [how it is structured](/content/uk/en/learn/resources/option-pool-calculator/index.html)). ### Economic rights Holders of preferred stock will receive certain economic investor rights. These include: 1. **Liquidation preference:** the right to receive their money back first in an [exit event](/content/uk/en/learn/startups/exit-strategies/index.html) such as an [M&A event](/content/uk/en/learn/startups/exit-strategies/mergers-acquisitions/index.html), [IPO](/content/uk/en/learn/startups/exit-strategies/ipo/index.html), or liquidation/wind-down of the company 2. **Pro rata rights (also known as participation rights or pre-emptive rights):** the right to invest in a future round of financing to maintain their ownership level 3. **Anti-dilution protection:** a price adjustment in case of a future [down round](/content/uk/en/learn/startups/fundraising/down-rounds/index.html) ### Control rights Venture capital (VC) investors typically require certain control rights as well. These include: 1. **Investor board seat**: the lead investor will usually take a [board seat](/content/uk/en/learn/startups/private-companies/board-of-directors/index.html) 2. **Preferred stockholder veto rights (also known as protective provisions)**: What decisions will need investors’ permission to make? 3. **Waiver and amendment provisions (for the financing documents)**: could affect investors’ ability to block a future financing round 4. **Right of first refusal (ROFR) and co-sale rights on common stock transfers**: right to purchase stock first if a founder or other large common stockholder tries to sell to a third party, or to sell alongside them 5. **Drag-along rights**: making sure no large stockholder can cause a holdout problem if the board and stockholders are otherwise aligned on selling the company to an acquirer While all elements of a term sheet are important, some are more standardized while others are more commonly negotiated. A lawyer can help negotiate your term sheets.