A term sheet is a short summary document that sets out the key economic and control terms of a proposed startup financing before the parties draft and sign the full legal agreements. It functions as the blueprint for the round. Lawyers then turn its bullet points into binding contracts.

Founders care because the term sheet is where the real negotiation happens. Once you sign it, the deal’s shape is mostly set, and walking back a term is hard.

Is a term sheet binding?

Most of a term sheet is non-binding. It signals intent and frames the deal, but it does not by itself obligate the investor to fund. A few provisions usually are binding. Confidentiality, exclusivity, and no-shop clauses typically bind you the moment you sign.

A no-shop clause stops you from courting other investors for a set window. Read the binding provisions closely. They carry legal weight even though the headline economics do not.

What a term sheet covers: economics and control

A term sheet splits into two buckets. Economics covers who gets what money. This includes valuation, the liquidation preference, option pool size, and the price per share. Control covers who decides what. This includes board seats, protective provisions, and voting rights.

Early-stage rounds often use a SAFE or a convertible promissory note with a much shorter term sheet, or none at all. Priced rounds that issue preferred stock use a longer, more detailed term sheet.

Model term sheet documents

The National Venture Capital Association (NVCA) publishes a widely used set of model financing documents, including a model term sheet. Many venture deals start from these forms. Using a recognized model speeds up negotiation and narrows disputes to the terms that actually matter for your fundraising.

Do not sign a term sheet you have not read line by line. The document is short, but each line drives real dollars and real control.

This is general information, not legal advice.