Term Sheet Reading Checklist
Valuation is only one line. Use this checklist to examine ownership, downside protection, control, and the working relationship behind the offer.
A term sheet sets the framework for the investment agreement. It is not the final agreement, but it reveals the investor’s priorities and can define the direction of the detailed documents that follow.
This is an orientation checklist, not legal advice. Use qualified counsel for the actual transaction.
Economics
- Is the valuation stated as pre-money or post-money?
- How much new money enters the company?
- What percentage will each shareholder own after the round?
- Is an option pool created or expanded before or after the investment?
- What happens to ownership in a lower-priced future round?
A valuation number can look identical while producing different ownership depending on whether it is pre- or post-money.
Liquidation
- Is there a liquidation preference?
- What multiple applies?
- Is it participating or non-participating?
- Does the preference accumulate?
- What happens at different realistic sale prices?
Model the distribution of proceeds instead of reading the clause only as legal language.
Control and decisions
- Which decisions require investor consent?
- Who appoints board or supervisory-board members?
- Are there veto rights?
- What reporting is required?
- Which actions can founders take without additional approval?
The practical question is how the company will make decisions when the plan is under pressure.
Founder obligations
- Is founder vesting introduced or reset?
- What happens if a founder leaves?
- Are there non-compete, exclusivity, or transfer restrictions?
- What commitments are made about time and operational involvement?
Future financing and exit
- Does the investor have pro-rata or pre-emption rights?
- Are there anti-dilution provisions?
- What drag-along and tag-along rights apply?
- Are there redemption or forced-sale mechanisms?
- How do these rights affect a later round or sale?
Process
- Record unresolved points explicitly.
- End each negotiation meeting with owners and deadlines.
- Send a written summary after the meeting.
- Keep the cap table consistent with the agreed economics.
- Compare the term sheet with the final investment documents.
An aggressive clause may be negotiable. It may also reveal how the investor approaches partnership. Read the document both as economics and as evidence about the future working relationship.
Source: adapted and translated from the negotiation and term-sheet chapters of the Polish original Anioł w Piekle (2021).
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