25 term sheet clauses in plain English
Two offers with the same valuation can be worth very different amounts to founders once you add the liquidation preference, option pool and control terms. For each clause: what it means, what's typical, and the founder-friendly and investor-friendly versions.
Economics
Decides how much of the outcome you keep
Valuation, option pool, liquidation preference, anti-dilution
Control
Decides who makes decisions and can block them
Board, protective provisions, drag-along, voting
Future rounds
Shapes your next fundraise
Pro-rata, ROFR, pay-to-play
Economics
| Clause | Typical | |
|---|---|---|
| Pre-money valuation | Agreed number, often negotiated against traction and competing interest. | |
| Option pool (the 'shuffle') | Often 10-15% available after the round, created in the pre-money. | |
| Liquidation preference | 1x non-participating, pari passu with other preferred. | |
| Participation | Non-participating. | |
| Anti-dilution | Broad-based weighted average. | |
| Dividends | Non-cumulative, when and if declared. | |
| Pay-to-play | Uncommon at seed; appears in tough markets. |
Control
| Clause | Typical | |
|---|---|---|
| Board composition | Seed: often 2 founders + 1 investor, or founders only. Series A: 2 founders, 1-2 investors, sometimes 1 independent. | |
| Protective provisions | A standard list protecting the investor's economic rights. | |
| Drag-along | Triggered by board + majority of preferred (and sometimes common). | |
| Voting | As-converted voting. |
Investor rights
| Clause | Typical | |
|---|---|---|
| Pro-rata rights | Common for lead and major investors. | |
| Information rights | Quarterly financials, annual budget for major investors. | |
| ROFR and co-sale | Standard. | |
| Registration rights | Standard boilerplate. |
Founders and deal terms
| Clause | Typical | |
|---|---|---|
| Founder vesting | 4 years, 1-year cliff, some credit for past work. | |
| Acceleration | Double-trigger acceleration is common. | |
| No-shop / exclusivity | 30-60 days. | |
| Conditions to close | Standard diligence and documents. | |
| Legal fees | Capped. | |
| Redemption rights | Rare in many venture markets. |
SAFEs and convertible notes
| Clause | Typical | |
|---|---|---|
| Valuation cap | Negotiated; post-money caps make dilution clear. | |
| Discount | Often 0-20%. | |
| MFN | Common on uncapped SAFEs. | |
| Interest and maturity (notes) | Low interest; maturity 18-24 months with conversion options. |
Important. Terms and norms vary by country, legal system and market cycle. “Typical” describes common venture practice, often in the US and UK. Always have a startup lawyer review a term sheet before you sign.