Term-Sheet Glossary

A Series A term sheet is non-binding (except for confidentiality and exclusivity), but it sets the structural shape of the deal — and what you agree here is what the lawyers will draft into binding documents next. This glossary covers the 22 clauses you are most likely to encounter, in the language plain enough that you can walk through them with your attorney instead of from them.

This is reference material, not legal advice. Take any actual term sheet to a licensed attorney in the relevant jurisdiction before signing anything. NVCA Model Term Sheet — nvca

Economic terms

1. Pre-money valuation

The agreed value of the company before the new money is added. If pre-money is $12M and the round size is $3M, post-money is $15M and the new investors own 20%.

2. Post-money valuation

pre-money + new investment. The denominator for ownership math. Note: post-money SAFEs fix their ownership against post-money, which materially changes dilution from older pre-money SAFE conventions.

3. Round size / new investment

Total new dollars going into the round. Includes lead investor + any co-investors.

4. Liquidation preference

What the investor gets back first in a sale or wind-down before any proceeds go to common (founders, employees). Standard is 1× non-participating — investor gets either their money back OR their pro-rata share of proceeds, whichever is greater. Watch for: anything above 1×, participating preferred ("double-dip" — money back and a pro-rata share), or stacked preferences.

5. Participation / participating preferred

Investor gets their preference and shares pro-rata in the remainder. Founder-unfriendly. Capped participation (e.g. 3× cap) is a middle ground.

6. Anti-dilution / price-based adjustments

If the company raises later at a lower price ("down round"), the investor's conversion price drops to protect them. Weighted average (broad or narrow) is the founder-friendly standard. Full ratchet is harsh — the investor's price drops to the new low price regardless of how small the down round is. Take ratchet language seriously.

7. Option pool (top-up)

The size of the unissued employee option pool, typically 10–15% of post-money fully-diluted. The pool is usually carved from pre-money, diluting founders only — not the new investor. Negotiating pool size is negotiating your dilution.

8. Pro-rata rights

The investor's right to participate in future rounds to maintain their ownership percentage. Standard for lead investors. Watch for "super pro-rata" — the right to increase ownership in future rounds, which is unusually founder-unfriendly.

Control terms

9. Board composition

How many seats, who appoints them. A Series A board commonly looks like 2 founders + 1 investor + 0–2 independents. The investor seat is a real signal — pay more attention to who holds it than to specific protective provisions.

10. Protective provisions

A list of actions the company cannot take without preferred shareholder consent (sell the company, raise more money, change preferences, etc.). Standard. Read the list closely — anything beyond ~10 items is unusual.

11. Drag-along

If a defined majority approves a sale, all shareholders must sell on the same terms. Prevents minority blocking. Standard.

12. Tag-along (co-sale)

If the founder sells shares, investors can sell their proportional stake on the same terms. Prevents founder-only liquidity.

13. ROFR (right of first refusal)

Company (then investors) can match any offer to purchase founder shares before the founder sells to a third party. Standard.

14. Information rights

Investors receive financial statements, board materials, and access. Standard, sized to investor's ownership percentage.

Founder & employee terms

15. Founder vesting

The cap table you sign at the round is forward-looking: founder shares vest over 4 years, typically with a 12-month cliff. Investors will insist. Doing this on day one is cheaper than retrofitting it after a falling-out.

16. Acceleration on change of control

What happens to unvested founder shares when the company is acquired. Single-trigger (acceleration on sale) is founder-friendly but rare. Double-trigger (acceleration on sale and termination) is the negotiated norm.

17. IP assignment

Every founder and early employee assigns their pre-incorporation work and all future work to the company. Non-negotiable for investors. Get this right; "the founders' code" living in a personal repo is a common gotcha.

18. Confidentiality / non-disclosure

Term sheet itself is confidential. Standard.

19. Exclusivity / no-shop

For a window (typically 30–45 days), the company won't solicit competing term sheets. Binding. Don't sign exclusivity until you're confident; it kills your leverage if the lead pulls back.

Other clauses

20. Conversion

Preferred converts to common 1-for-1 (or per the conversion ratio) at IPO, voluntarily, or as a protective measure. Standard.

21. Redemption rights

Right of investor to force the company to buy back its shares after a long horizon (5–7 years) if no liquidity event. Increasingly rare in venture but reappears in growth-stage rounds. Pay attention.

22. Closing conditions

What must be true at signing — audited financials, founder agreements signed, no material adverse change, etc. The list defines the homework you have to do between term sheet and close.

The thread to pull on with your attorney

For each clause above, the question is rarely "what's the standard?" — those answers live in the NVCA documents and in Cooley GO's term-sheet generator. The question is "is this term reasonable for our situation, given everything else we've agreed to?" That's the conversation only your attorney can have. Cooley GO term sheet — cooley-go YC Series A primer — yc