What does a Series A term sheet look like?

Takeaway: A Series A term sheet is the non-binding blueprint for your financing; it is a high-level summary of the critical economic and control terms that will govern the long-term partnership between your company and your new investors.

After weeks or months of pitching, you have finally received a term sheet from a venture capital fund for your Series A financing. This is a major milestone and a huge validation of your company's progress. But what is this document, and what does it represent?

A term sheet is a non-binding outline of the proposed terms and conditions for an investment. It is not the final, definitive legal contract, but it is the foundational blueprint from which all the final legal documents will be drafted. It is a good-faith agreement on the core business deal, and it covers the three main categories of any venture financing: the economics of the investment, the control and governance rights of the investors, and the rights of the founders and employees.

The Structure of a Term Sheet

While the specifics can vary, most Series A term sheets follow a standard structure and are typically 2-10 pages long. Think about term sheets as having two major components: the economic terms and the control terms.

1. The Offering Terms (The "Economics"): This is the heart of the deal. This section outlines the core financial terms of the investment, including:

  • The total amount being raised.

  • The "pre-money" valuation of the company.

  • The price per share for the new Series A Preferred Stock.

  • The liquidation preference for the investors.

  • The size of the post-financing employee stock option pool.

2. The Stockholder Agreements (The "Control Terms"): This section outlines the terms that will be included in a series of separate legal agreements that will be signed by all major stockholders (both founders and investors). This includes:

  • The composition of the new Board of Directors.

  • The information and registration rights granted to the investors.

  • The anti-dilution protection and protective covenants (veto rights).

  • The Right of First Refusal and Co-Sale Agreement, which governs the transfer of stock.

  • The Drag-Along Agreement, which governs a future sale of the company.

A term sheet is a dense and complex document, and every single line has a significant legal and economic consequence. It is typically quite difficult to negotiate different terms in the definitive documents once they are memorialized in the term sheet so it is absolutely essential that you review it in detail with experienced legal counsel before you sign.

Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.