Investment Term Sheet Template 2025
Professional investment term sheet template with comprehensive guide. Learn what an investment term sheet is, how to fill it out, and download our template designed by legal experts for venture capital, startup funding, and investment negotiations.
Download TemplateWhat is an Investment Term Sheet?
An investment term sheet is a non-binding document that outlines the basic terms and conditions of a potential investment between investors and a company. It serves as a framework for negotiation and due diligence before creating the final binding legal investment agreements. Term sheets establish the fundamental economic and governance terms that will govern the investment relationship.
Investment term sheets are essential in venture capital, private equity, and angel investment transactions. They provide a clear roadmap for both parties to understand the key terms before incurring the time and expense of legal documentation. While typically non-binding, certain provisions like exclusivity periods and confidentiality requirements are often binding to protect the negotiation process.
📋 Key Components of an Investment Term Sheet
- Investment amount - total funding being raised and investor commitment
- Valuation - pre-money and post-money company valuation
- Equity percentage - ownership stake and share class details
- Liquidation preferences - priority and participation in exit events
- Board composition - investor representation and governance
- Protective provisions - investor veto rights and approval requirements
- Anti-dilution protection - protection against future down rounds
Types of Term Sheets by Investment Stage
| Investment Stage | Typical Size | Key Terms Focus | Complexity Level |
|---|---|---|---|
| Angel/Pre-Seed | $25K - $250K | Basic economics, simple structure | Low complexity |
| Seed Round | $250K - $2M | Liquidation preference, basic board seats | Medium complexity |
| Series A | $2M - $15M | Full governance, protective provisions | High complexity |
| Series B+ | $10M - $100M+ | Advanced rights, liquidation waterfall | Very high complexity |
| Growth/PE | $50M - $500M+ | Control provisions, operational terms | Maximum complexity |
Term Sheet Evolution by Stage
- Early Stage (Angel/Seed): Simple terms focused on basic investor protection
- Growth Stage (Series A/B): Comprehensive governance and control provisions
- Later Stage (Series C+): Complex liquidation waterfalls and advanced rights
- Pre-IPO/Growth Equity: IPO preparation and public company readiness terms
- Buyout/Control: Management incentives and operational control terms
Industry-Specific Variations
- Technology Startups: IP protection, talent retention, and scaling provisions
- Biotech/Pharma: Milestone-based funding, regulatory approval terms
- SaaS Companies: Revenue metrics, customer retention, and subscription terms
- Hardware/Manufacturing: Inventory financing, production milestones
- Consumer Brands: Marketing spend, distribution partnerships
✅ Term Sheet Strategy by Stage
- Early Stage: Focus on investor quality and mentorship value
- Growth Stage: Balance dilution with growth capital needs
- Later Stage: Prepare for exit strategy and public markets
- Down Rounds: Protect existing shareholders from excessive dilution
Essential Term Sheet Provisions
Economic Terms (The Money)
- Investment Amount: Total amount being raised and individual investor commitments
- Pre-Money Valuation: Company value before the new investment
- Post-Money Valuation: Company value after the investment (Pre-Money + Investment)
- Price Per Share: Cost per share for the preferred stock being issued
- Ownership Percentage: Investor's percentage ownership after the investment
- Option Pool: Size and timing of employee stock option pool expansion
Liquidation Preferences (Exit Rights)
- 1x Non-Participating: Investor gets money back first, then converts to common
- 1x Participating: Investor gets money back first, then participates pro-rata
- Multiple Liquidation Preference: 2x, 3x, or higher multiple of investment
- Capped Participation: Participation up to a specified multiple
- Cumulative Dividends: Accrued dividends added to liquidation preference
Control and Governance
- Board Composition: Number of board seats and appointment rights
- Board Committees: Audit, compensation, and nominating committees
- Voting Rights: Class voting rights and special voting provisions
- Protective Provisions: Investor veto rights on major corporate actions
- Information Rights: Financial reporting and company information access
- Observer Rights: Non-voting board meeting attendance
Anti-Dilution Protection
- Weighted Average Broad-Based: Considers all outstanding securities
- Weighted Average Narrow-Based: Considers only common stock and options
- Full Ratchet: Conversion price adjusts to lowest subsequent sale price
- Pay-to-Play: Requires pro-rata participation to maintain anti-dilution
- Carve-Outs: Exceptions for employee option grants and other issuances
Transfer and Liquidity Rights
- Tag-Along Rights: Ability to participate in founder stock sales
- Drag-Along Rights: Ability to force all shareholders to participate in sale
- Right of First Refusal: Company's right to purchase shares before third parties
- Co-Sale Rights: Right to participate proportionally in any stock sale
- Registration Rights: Rights to register shares for public sale
⚠️ Critical Term Sheet Negotiation Points
- Liquidation preference structure and participation rights
- Anti-dilution protection mechanism and carve-outs
- Board composition and protective provision scope
- Option pool timing and size impact on founder dilution
- Conversion and redemption rights triggers
- Exclusivity period length and break-up fee provisions
How to Fill Out an Investment Term Sheet: Step-by-Step Guide
1
Define Parties and Basic Investment Terms
Establish: Core information about the company, investors, and fundamental investment structure.
- Company legal name, incorporation state, and business description
- Lead investor and participating investor names and entities
- Total investment amount and individual investor commitments
- Series designation (Seed, Series A, etc.) and closing timeline
- Type of securities being issued (preferred stock, convertible notes)
2
Set Valuation and Economic Terms
Calculate: Company valuation, pricing, and core economic terms of the investment.
- Pre-money valuation and calculation methodology
- Post-money valuation (pre-money + investment amount)
- Price per share for preferred stock being issued
- Investor ownership percentage post-investment
- Option pool size and timing of expansion
3
Define Liquidation Preferences and Rights
Specify: Investor preferences in liquidation events and conversion rights.
- Liquidation preference multiple (1x, 2x, etc.)
- Participation rights (non-participating, participating, capped)
- Dividend rate and cumulative provisions
- Conversion rights and automatic conversion triggers
- Redemption rights and procedures
4
Establish Governance and Control Terms
Structure: Board composition, voting rights, and investor control mechanisms.
- Board of directors size and composition
- Investor board seats and appointment rights
- Protective provisions and investor veto rights
- Information rights and reporting requirements
- Observer rights and meeting attendance
5
Include Anti-Dilution and Transfer Provisions
Add: Anti-dilution protection and share transfer rights for investors.
- Anti-dilution protection type (weighted average, full ratchet)
- Pay-to-play provisions and participation requirements
- Tag-along and drag-along rights
- Right of first refusal and co-sale provisions
- Registration rights for public offerings
6
Add Process Terms and Legal Provisions
Include: Exclusivity, conditions to closing, and next steps for completing the investment.
- Exclusivity period (no-shop) duration and scope
- Conditions to closing and due diligence requirements
- Use of proceeds and business plan restrictions
- Key person and employment provisions
- Break-up fees and expense reimbursement
⚠️ Term Sheet Best Practices
Term sheets should be clear, comprehensive, and balanced. While typically non-binding, they form the basis for all subsequent legal documentation. Always engage experienced legal counsel to review terms and ensure proper compliance with securities laws. Consider market standards and precedent transactions for benchmarking terms.
Term Sheet Negotiation Strategies
Founder Negotiation Priorities
- Valuation Maximization: Achieve highest reasonable pre-money valuation
- Control Retention: Maintain voting control and board influence
- Liquidation Optimization: Negotiate favorable liquidation preferences
- Anti-Dilution Minimization: Limit scope of anti-dilution protection
- Option Pool Timing: Delay option pool expansion until post-money
- Protective Provision Limits: Minimize investor veto rights scope
Investor Negotiation Priorities
- Downside Protection: Secure appropriate liquidation preferences
- Governance Rights: Obtain meaningful board representation
- Information Access: Ensure comprehensive information rights
- Anti-Dilution Protection: Protect against future down rounds
- Exit Rights: Secure registration and drag-along rights
- Protective Provisions: Obtain veto rights on major decisions
Common Negotiation Trade-Offs
- Valuation vs. Terms: Higher valuation with more investor-friendly terms
- Liquidation vs. Anti-Dilution: Lower liquidation preference with stronger anti-dilution
- Board Control vs. Protective Provisions: Fewer board seats with more veto rights
- Option Pool vs. Valuation: Larger option pool with higher pre-money valuation
- Participation vs. Multiple: Non-participating with higher liquidation multiple
Market Standards and Benchmarking
- Stage-Appropriate Terms: Terms should match company stage and risk profile
- Investor Type Alignment: Different terms for different investor types
- Geographic Variations: Silicon Valley vs. other market standards
- Industry Benchmarks: Sector-specific term variations
- Market Conditions: Hot vs. cold market impact on terms
💡 Negotiation Best Practices
- Research market standards and comparable transactions
- Prioritize terms based on importance and likelihood of impact
- Consider long-term implications of terms, not just current round
- Build relationships and trust during the negotiation process
- Use experienced legal counsel and advisors
- Document all agreed terms clearly and precisely
Common Term Sheet Mistakes to Avoid
Founder Mistakes
- Overvaluing the Company: Setting unrealistic valuations that deter investors
- Ignoring Liquidation Preferences: Not understanding the impact of liquidation waterfall
- Accepting Excessive Dilution: Taking too much money at low valuations
- Poor Option Pool Timing: Expanding option pool before investment (dilutes founders)
- Broad Protective Provisions: Giving investors too many veto rights
- No Legal Counsel: Negotiating complex terms without experienced legal advice
Investor Mistakes
- Overemphasis on Terms: Focusing on terms at expense of company quality
- Excessive Control Provisions: Creating adversarial relationship with founders
- Inadequate Due Diligence: Rushing to close without proper investigation
- Unrealistic Expectations: Setting unachievable milestones or requirements
- Poor Reference Checking: Not thoroughly vetting management team
- Misaligned Economics: Terms that don't align with investment thesis
Common Structural Mistakes
- Unclear Liquidation Waterfall: Ambiguous language about liquidation priorities
- Incomplete Anti-Dilution: Missing carve-outs for employee options and other issuances
- Vague Protective Provisions: Unclear thresholds and scope of investor veto rights
- Missing Key Provisions: Omitting important terms like tag-along or drag-along rights
- Inconsistent Terms: Terms that conflict with each other or prior investments
- Poor Documentation: Incomplete or ambiguous term descriptions
Process and Timing Mistakes
- Inadequate Preparation: Not having financials and legal documents ready
- Parallel Negotiations: Negotiating with multiple investors simultaneously without disclosure
- Rushed Timeline: Accepting terms under time pressure without proper consideration
- No Backup Plans: Having only one potential investor without alternatives
- Poor Communication: Failing to keep all parties informed of progress and changes
- Exclusivity Violations: Shopping the deal during exclusivity periods
⚠️ Red Flags in Term Sheets
- Multiple liquidation preferences (2x, 3x or higher)
- Full ratchet anti-dilution without carve-outs
- Excessive protective provisions and veto rights
- Redemption rights with unreasonable terms
- Pay-to-play provisions with harsh penalties
- Unlimited personal guarantees or liability
From Term Sheet to Closing: The Investment Process
Post-Term Sheet Timeline
| Phase | Timeline | Key Activities | Participants |
|---|---|---|---|
| Due Diligence | 2-4 weeks | Financial, legal, business review | Investors, advisors, management |
| Legal Documentation | 3-6 weeks | Draft and negotiate definitive agreements | Legal counsel, both parties |
| Board Approvals | 1-2 weeks | Board and shareholder resolutions | Board members, shareholders |
| Closing Preparations | 1 week | Final documents, wire transfers | Lawyers, transfer agents |
Due Diligence Workstreams
- Financial Due Diligence: Historical financials, projections, unit economics
- Legal Due Diligence: Corporate structure, contracts, IP, litigation
- Business Due Diligence: Market analysis, competitive positioning, team assessment
- Technical Due Diligence: Product architecture, technology risks, scalability
- Commercial Due Diligence: Customer validation, sales pipeline, market traction
- ESG Due Diligence: Environmental, social, and governance factors
Legal Documentation Process
- Stock Purchase Agreement: Primary investment contract with all terms
- Amended Charter: Updated certificate of incorporation for new preferred shares
- Investors' Rights Agreement: Information rights, registration rights, restrictions
- Voting Agreement: Board election and voting arrangements
- Right of First Refusal Agreement: Transfer restrictions and co-sale rights
- Management Rights Letter: Investor inspection and advisory rights
Closing Conditions and Requirements
- Satisfactory Due Diligence: Completion of all due diligence workstreams
- Legal Documentation: Execution of all definitive investment agreements
- Corporate Approvals: Board and shareholder resolutions approving the investment
- Regulatory Compliance: Securities law filings and exemption compliance
- Key Employee Agreements: Management employment and equity agreements
- Insurance Coverage: Directors and officers and other required insurance
🎯 Successful Closing Best Practices
- Maintain open communication throughout the process
- Address issues and concerns promptly and transparently
- Use experienced legal counsel familiar with venture transactions
- Prepare comprehensive due diligence materials in advance
- Plan for contingencies and potential delays
- Celebrate the partnership and plan for post-closing integration
Market Terms and Industry Standards
2025 Market Standards by Stage
| Term | Seed Round | Series A | Series B | Series C+ |
|---|---|---|---|---|
| Liquidation Preference | 1x non-participating | 1x non-participating | 1x participating | 1x participating |
| Anti-Dilution | Weighted average | Weighted average | Weighted average | Weighted average |
| Board Control | Founder majority | Balanced board | Investor influence | Investor control |
| Option Pool | 15-20% | 15-20% | 10-15% | 5-10% |
| Protective Provisions | Basic | Standard | Comprehensive | Extensive |
Geographic Variations
- Silicon Valley: Most investor-friendly terms, high competition for deals
- New York: Balanced terms, focus on revenue and business fundamentals
- Boston: Conservative terms, emphasis on IP and technology
- Austin/Seattle: Emerging markets, more founder-friendly terms
- International: Local legal systems, different investor expectations
Sector-Specific Considerations
- SaaS/Software: Revenue multiples, customer metrics, recurring revenue terms
- Biotech/Pharma: Milestone-based funding, regulatory approval contingencies
- Hardware/Manufacturing: Inventory financing, production milestone terms
- Consumer/Retail: Marketing spend controls, brand protection provisions
- Fintech: Regulatory compliance, capital requirements, licensing terms
Market Cycle Impact on Terms
- Hot Markets: Higher valuations, founder-friendly terms, faster processes
- Cold Markets: Lower valuations, investor-friendly terms, longer timelines
- Correction Periods: Focus on fundamentals, conservative structures
- Recovery Phases: Gradual return to balanced terms and valuations
📈 Tracking Market Trends
- Monitor venture capital databases and industry reports
- Follow leading law firms' market term surveys
- Attend industry conferences and networking events
- Consult with experienced advisors and attorneys
- Review recent comparable transactions in your sector
Advanced Term Sheet Provisions
Sophisticated Liquidation Structures
- Multiple Liquidation Preferences: 2x, 3x, or higher multiples of investment
- Participating Preferred with Caps: Participation capped at specific multiples
- Tiered Liquidation: Different preferences for different tranches
- Cumulative Dividends: Accrued dividends added to liquidation preference
- Liquidation Waterfalls: Complex distribution priorities across multiple classes
Performance-Based Terms
- Milestone-Based Funding: Tranched investment based on achievement milestones
- Earnout Provisions: Additional consideration based on performance metrics
- Ratchet Mechanisms: Anti-dilution that adjusts based on performance
- Burn Rate Controls: Spending restrictions and budget approval requirements
- Revenue Thresholds: Terms that change based on revenue achievement
Control and Governance Enhancements
- Super-Majority Voting: Enhanced voting requirements for major decisions
- Consent Rights: Broad investor approval requirements
- Director Designation Rights: Specific qualifications for board appointees
- Committee Structure: Mandatory board committees with investor representation
- Operating Plans: Detailed business plan approval and monitoring
Advanced Transfer Rights
- Enhanced Registration Rights: Demand and piggyback registration provisions
- Forced Sale Rights: Ability to initiate company sale process
- Tag-Along Plus: Enhanced participation rights in founder sales
- ROFR with Matching: Right to match third-party offers
- Lock-Up Agreements: Restrictions on sales for specified periods
International and Cross-Border Considerations
- Currency Hedging: Protection against foreign exchange fluctuations
- Regulatory Approvals: Foreign investment approval requirements
- Tax Optimization: Structure to minimize tax leakage
- Exit Jurisdiction: Governing law and dispute resolution provisions
- Repatriation Rights: Ability to move funds across borders
⚠️ Advanced Terms Considerations
Advanced provisions can create significant complexity and potential for disputes. Ensure that sophisticated terms are necessary and appropriate for the specific situation. Consider the impact on future financing rounds and exit scenarios. Always engage experienced legal counsel when implementing complex structures.
Frequently Asked Questions
Term sheet negotiations typically take 2-8 weeks, depending on several factors:
- Deal complexity: Simple seed rounds may be negotiated in 1-2 weeks, while complex multi-party rounds can take 6-8 weeks
- Number of parties: Multiple investors extend negotiation time
- Market conditions: Hot markets move faster, cold markets take longer
- Experience level: Experienced parties can negotiate more efficiently
- Term alignment: Pre-aligned expectations speed up the process
Most term sheets are primarily non-binding, but include some binding provisions:
- Non-binding provisions: Investment terms, valuation, governance rights, and most commercial terms
- Binding provisions: Exclusivity (no-shop), confidentiality, expense reimbursement, and break-up fees
- Legal effect: Non-binding terms are intentions only; binding terms are legally enforceable
- Purpose: Creates framework for negotiation while protecting the process
Always review the specific binding/non-binding language in each term sheet to understand which provisions are enforceable.
Yes, but with proper disclosure and process management:
- Create competition: Multiple interested investors can improve terms
- Disclosure requirement: Inform investors about parallel processes
- Exclusivity consideration: Be careful about exclusivity periods and no-shop provisions
- Timing coordination: Try to align timelines for easier comparison
- Decision criteria: Establish clear criteria beyond just valuation
Focus on quality investors who add strategic value, not just the highest bidder.
Since most term sheets are non-binding, either party can typically walk away:
- Good faith negotiation: Both parties should negotiate in good faith based on the term sheet
- Material changes: Significant deviations from term sheet terms may justify walking away
- Due diligence discoveries: Material issues found during due diligence can change terms
- Market changes: Significant market shifts may impact final terms
- Break-up fees: Some term sheets include fees if company terminates
Work with legal counsel to understand your specific obligations and exit rights under the term sheet.
Compare term sheets holistically, not just on valuation:
- Total economic value: Consider liquidation preferences, participation, and anti-dilution
- Control implications: Board composition, protective provisions, and voting rights
- Investor quality: Track record, expertise, network, and reputation
- Strategic value: Industry connections, operational support, and future funding capacity
- Chemistry and fit: Working relationship and cultural alignment
- Reference checks: Speak with other portfolio companies about investor behavior
Create a scorecard comparing all relevant factors, not just financial terms.
Consider walking away when:
- Unreasonable terms: Terms significantly worse than market standards
- Misaligned expectations: Fundamental disagreement on company direction or strategy
- Due diligence concerns: Investor fails to meet reasonable due diligence standards
- Character issues: Negative references or concerning behavior during negotiations
- Better alternatives: Significantly better term sheet from another investor
- Changed circumstances: Material changes in business or market conditions
Remember that you'll work with these investors for years - the relationship matters as much as the terms.
Term Sheet Best Practices and Expert Tips
For Entrepreneurs and Founders
- Prepare Thoroughly: Have financials, legal documents, and business plans ready
- Know Your Numbers: Understand unit economics, growth metrics, and cash flow
- Research Investors: Understand their investment thesis, portfolio, and preferences
- Build Relationships: Start investor relationships before you need funding
- Create Competition: Multiple interested investors improve negotiating position
- Focus on Fit: Choose investors who add strategic value beyond money
- Plan for Future: Consider impact of current terms on future funding rounds
For Investors
- Thorough Due Diligence: Investigate all aspects of the business and team
- Market-Standard Terms: Use reasonable terms that don't demotivate founders
- Clear Communication: Be transparent about requirements and timeline
- Value-Add Focus: Demonstrate how you'll help beyond providing capital
- Reference Checks: Verify founder and team backgrounds and references
- Portfolio Synergies: Consider connections with existing portfolio companies
- Long-term Perspective: Build relationships for potential follow-on investments
Legal and Process Best Practices
- Experienced Counsel: Use attorneys with venture capital and securities expertise
- Clear Documentation: Ensure all terms are clearly and completely documented
- Market Research: Benchmark terms against comparable recent transactions
- Timeline Management: Set realistic timelines and manage expectations
- Issue Resolution: Address problems early and transparently
- Future Planning: Consider impact on subsequent financing rounds
Common Success Factors
- Mutual Respect: Treat all parties with professionalism and respect
- Transparency: Share relevant information openly and honestly
- Realistic Expectations: Set achievable goals and timelines
- Win-Win Mentality: Seek solutions that benefit all parties
- Long-term Focus: Build relationships for ongoing partnership
- Professional Advice: Leverage experienced advisors and counsel
🏆 Term Sheet Success Checklist
- ✅ All parties clearly understand the terms and implications
- ✅ Terms are market-standard and reasonable for the situation
- ✅ Both parties are excited about the partnership opportunity
- ✅ Clear timeline and next steps for moving to closing
- ✅ Experienced legal counsel has reviewed all provisions
- ✅ Terms support company's long-term growth and exit strategy
Download Investment Term Sheet Template
Our comprehensive investment term sheet template includes all essential provisions for venture capital, startup funding, and private equity investments. The template is designed by legal experts and includes:
- Complete term sheet template with all standard provisions
- Customizable terms for different investment stages and structures
- Detailed instructions and guidance for each section
- Alternative provisions for various scenarios and preferences
- Market benchmark data and industry standard terms
- Negotiation tips and best practices guidance
⚖️ Legal Disclaimer
Important: This template is provided for educational and informational purposes only and does not constitute legal advice. Investment term sheets involve complex legal and regulatory requirements that vary by jurisdiction, investment type, and specific circumstances.
Always consult with qualified securities attorneys and other professional advisors before using any term sheet template. The template should be customized for your specific situation and reviewed by experienced legal counsel to ensure compliance with applicable laws and protection of your interests.
Investment terms have significant long-term implications for all parties. Term sheets form the basis for binding legal agreements and should be negotiated carefully with proper legal guidance.
MyPitchDecks.com makes no warranties regarding the completeness, accuracy, or suitability of this template for any particular purpose and disclaims all liability for any damages arising from its use.