Your attorney will charge you $2,000–$4,000 to review a term sheet. You can do a preliminary review yourself in about 45 minutes — and knowing what's in it before the call means you get more value from the time you're paying for.
A term sheet is not a contract. It's a list of proposed deal terms that will eventually become binding documents. The non-binding nature is precisely why negotiation is possible. Most founders don't realize how much room there is.
Here's how to read one.
The Sections That Matter Most
A standard early-stage term sheet has 8–12 sections. Here's how to prioritize them:
1. Valuation and Price
This is the headline number. The post-money valuation and price per share determine how much your existing shareholders own after the round.
Watch for: liquidation preference layering, participating vs. non-participating preferred, and multiple liquidation preferences (1x, 2x) — 2x preferences are aggressive for early-stage.
2. Liquidation Preference
This determines what investors get paid — and in what order — when the company exits, sells, or winds down.
Standard in 2026: 1x non-participating preferred. The investor gets 1x their investment back before common shareholders receive anything, then doesn't participate further.
Red flags:
- 2x liquidation preference (investor gets 2x their money back first)
- Participating preferred (investor gets paid back AND participates in remaining proceeds)
- Participating preferred with cap (a hybrid that's increasingly common and often poorly understood)
3. Pro Rata Rights
The right of existing investors to participate in future rounds. Standard — but one of the most negotiated terms in early-stage deals.
Check: Is the pro rata right broad (any round) or narrow (only Series A)? Does it cover bridge rounds? Is it super pro rata (they can invest more than their existing share)?
4. Protective Provisions
These are veto rights — things the investor can block even without a board seat.
Standard protective provisions in 2026 include incurring debt above a threshold, selling major assets, issuing new classes of equity, and changing the rights of preferred stock.
The scope matters. Broad protective provisions give investors effective control over major decisions without a board seat. Push to narrow them to genuinely material transactions.
5. Board Composition
Who sits on your board — and who controls it — matters more than the headline valuation.
Standard early-stage structure:
- 1 founder seat (you)
- 1 investor seat
- 1 independent (neutral) tiebreaker seat
If the investor is pushing for two seats and the founder has one, that is not standard. Push back immediately.
6. Anti-Dilution Provisions
Protects investors from price degradation in a down round. Two types:
- Full ratchet — most aggressive; investor's price adjusts all the way down to the new round's price. Avoid if possible.
- Weighted average — market standard; adjusts conversion price based on a formula weighting new vs. old price.
A broad-based weighted average anti-dilution provision is the most founder-friendly version.
Before you sign that term sheet, get the numbers reviewed.
Book a free 15-minute intro call with Attorney Courtney Logan to walk through your terms before you're committed.
👉 Schedule intro call
The Terms That Don't Get Attention But Should
Drag-Along Rights
Gives the majority the ability to force all shareholders to accept an acquisition. Check: Who can trigger a drag-along? What percentage threshold is required? Standard: board majority + majority of preferred holders can initiate. Push for 66–75% preferred threshold.
Tag-Along Rights
If a major shareholder sells their stake, minority holders can sell their proportional share at the same price. Standard and non-controversial — make sure it's included.
Right of First Refusal (ROFR)
If a shareholder wants to sell their shares, the company (and existing shareholders) has the right to buy them first. Standard. Make sure the ROFR covers all transfers including secondary sales.
Information Rights
Standard rights include annual audited financials, quarterly unaudited financials, and board materials. Watch for overly broad rights to receive all company communications — narrow this to board materials and financials only.
How to Negotiate Before You Sign
Everything is negotiable until you sign. The most commonly negotiated terms at early stage:
- Liquidation preference — push from 2x to 1x; from participating to non-participating
- Anti-dilution — full ratchet to weighted average; narrow-based to broad-based
- Board composition — equal founder/investor seats with independent as tiebreaker
- Pro rata rights — broaden to cover all future rounds, not just Series A
- Option pool — confirm pre-money vs post-money and the size
Investors have a template. You have a template. The final term sheet is a negotiation, not a take-it-or-leave-it. The founders who get the best terms know what standard market terms are and push back on deviations.
Before you sign that term sheet, get the numbers reviewed.
Book a free 15-minute intro call with Attorney Courtney Logan to walk through your terms before you're committed.
👉 Schedule intro call