--- title: "Term Sheet | Altss Glossary" description: "A term sheet is a short document setting out the main economic and control terms of a proposed investment, agreed before definitive documents are drafted;…" canonical: "https://altss.com/glossary/term-sheet" --- Glossary · Deal terms & mechanics # Term Sheet A term sheet is a short document setting out the main economic and control terms of a proposed investment, agreed before definitive documents are drafted; most terms are non-binding, but some, such as exclusivity and confidentiality, usually bind. Publisher: Altss LLCPublished 2026-01-05Content modified 2026-10-01 ALTSS-VC-031 Before lawyers draft the full set of investment documents, the investor and the company agree a few pages of headline terms: price, amount, the rights the investor gets, and how the board will work. Signing the term sheet does not oblige either side to complete the deal, but it usually stops the company from negotiating with other investors for a period. ## What a venture term sheet covers A US venture term sheet usually summarises the terms that will go into each definitive document. Economic terms: amount raised, pre-money valuation and price per share, the [option pool](https://altss.com/glossary/option-pool) (and whether it sits in the pre-money), [liquidation preference](https://altss.com/glossary/liquidation-preference), dividends, conversion, [anti-dilution](https://altss.com/glossary/anti-dilution) protection, pay-to-play and redemption. Control terms: board composition, protective provisions, voting and drag-along. Investor rights: information rights, registration rights, [pro rata rights](https://altss.com/glossary/pro-rata-rights), rights of first refusal and co-sale on founder shares. Other terms: founder vesting, conditions to closing, the no-shop, expenses and governing law. ## Binding and non-binding provisions The economic and governance terms are normally expressed as non-binding: either side can walk away before the definitive documents are signed. Certain clauses are usually stated to be binding: exclusivity (a "no-shop" period during which the company may not solicit or negotiate other financings), confidentiality, responsibility for legal expenses, and governing law. Calling a term sheet simply "non-binding" is therefore inaccurate. Reneging on a signed term sheet is legally possible but carries reputational cost for either party, which is why parties treat signed terms as settled unless diligence finds something new. ## From term sheet to closing After signing, the investor completes legal and commercial diligence and counsel drafts the definitive agreements. In US venture financings these usually follow the National Venture Capital Association (NVCA) model documents: an amended and restated certificate of incorporation (preferred stock rights), a stock purchase agreement, an investors' rights agreement, a voting agreement, and a right of first refusal and co-sale agreement, sometimes with a management rights letter and director indemnification agreements. The round closes when those are signed, any required stockholder and board approvals are obtained, and the money is paid. ## Which terms move the economics Price per share is only one lever. A higher headline valuation with a large pre-money pool, a participating or multiple liquidation preference, or senior ranking over earlier series can be worth less to founders and earlier investors than a lower valuation with standard terms. Evaluating a term sheet means modelling the cap table and the exit waterfall under several outcomes rather than comparing headline valuations. ## Term sheets outside venture The same word is used elsewhere with different content. A fund's summary of principal terms outlines the proposed [limited partnership agreement](https://altss.com/glossary/limited-partnership-agreement) for prospective LPs. A credit term sheet or commitment letter sets out pricing, covenants and security for a loan, often with a commitment fee. In M&A, the comparable early document is usually a letter of intent. ## Not the same as - Letter of Intent: A letter of intent is the usual early document in an acquisition; a term sheet is the usual early document in a financing round, though the two serve similar purposes. - [Limited Partnership Agreement (LPA)](https://altss.com/glossary/limited-partnership-agreement): A limited partnership agreement is the binding constitutional document of a fund; a fund term sheet only summarises its proposed terms. - [Subscription Agreement (Subscription Documents)](https://altss.com/glossary/subscription-agreement): A subscription agreement is the binding document by which an investor commits to buy securities or fund interests; a term sheet precedes it. ## Common mistakes - Describing a term sheet as entirely non-binding. Exclusivity, confidentiality and expense clauses usually bind. - Comparing competing term sheets on headline pre-money valuation alone. - Ignoring whether the option pool increase is in the pre-money. - Assuming every term in a term sheet will appear unchanged in the definitive documents; drafting often adds detail that matters. ## Questions ### Is a term sheet legally binding? Mostly not: the economic and governance terms are usually non-binding. Exclusivity (no-shop), confidentiality, expenses and governing law clauses are usually binding. ### Who drafts the term sheet? In a venture round, usually the lead investor, which then negotiates it with the company. ## Sources - [NVCA Model Legal Documents](https://nvca.org/model-legal-documents/). National Venture Capital Association, NVCA, Certificate of Incorporation, Stock Purchase Agreement, Investors' Rights Agreement updated October 2025; Voting Agreement June 2026; ROFR and Co-Sale April 2026; Management Rights Letter and Indemnification Agreement July 2020. Status: Current (checked 2026-10-01). Certificate of Incorporation; Stock Purchase Agreement; Investors' Rights Agreement; Voting Agreement; ROFR and Co-Sale Agreement; Management Rights Letter; Indemnification Agreement — supports: Definitive document set that a US venture term sheet summarises ## Related terms 6 terms - [Liquidation Preference](https://altss.com/glossary/liquidation-preference) - [Anti-Dilution Protection](https://altss.com/glossary/anti-dilution) - [Pro Rata Rights](https://altss.com/glossary/pro-rata-rights) - [Employee Option Pool](https://altss.com/glossary/option-pool) - [Lead Investor](https://altss.com/glossary/lead-investor) - [Priced Round](https://altss.com/glossary/priced-round) ## Referenced by 2 terms - [Preferred Stock (Venture Convertible Preferred)](https://altss.com/glossary/preferred-stock) - [Series A](https://altss.com/glossary/series-a) ## Concept record Concept ID ALTSS-VC-031 Classification Deal terms & mechanics Topics Venture capital & startups Version 2.0.0 Last reviewed 2026-10-01 Structured data [JSON](https://altss.com/reference/concepts/term-sheet.json) ## Canonical URL https://altss.com/glossary/term-sheet