TL;DR
A term sheet is a document that sets out the price, ownership and control terms an investor is offering for a priced funding round, and it's mostly non-binding until both sides move to full legal documentation.
What term sheet means
A term sheet is the document a lead investor sends once they've decided to make an offer on a priced round. It covers two broad categories of terms. Economic terms set the price: pre-money and post-money valuation, how much is being invested, the liquidation preference, and any pro-rata rights the investor wants for future rounds. Control terms set the governance: board composition, protective provisions that require investor approval for major decisions, a right of first refusal on future share sales, and sometimes drag-along rights that bind all shareholders to a future company sale approved by the majority.
Most of a term sheet is explicitly non-binding, meaning either side can walk away before the definitive legal agreements are signed. The exceptions are usually confidentiality and exclusivity clauses, often called a "no-shop" provision, which do bind you the moment you sign, typically for 30 to 60 days, during which you agree not to solicit or negotiate with other investors while this one completes diligence.
A term sheet only appears for priced rounds. Rounds done entirely on SAFEs skip the term sheet stage because a SAFE defers the valuation conversation rather than setting it, so there's nothing to negotiate a price on until conversion.
Why it matters for African founders
By the time a founder is negotiating a term sheet with a fund that explicitly lists Series A among its stages, such as Ventures Platform, the terms carry more weight than an early SAFE ever did, since board seats, protective provisions and liquidation preference start shaping real control over the company, not just its economics. Reading a term sheet as "just a formality before the money arrives" is a mistake at this stage: the terms in it are what get carried, mostly unchanged, into the final legal documents.
Common mistakes founders make with term sheets
- Signing the exclusivity or no-shop clause without realising it's the one part of the document that's actually binding
- Not getting an independent lawyer to review the term sheet before signing, relying instead on the investor's own counsel
- Comparing only the valuation across competing term sheets and ignoring control terms like board composition and protective provisions
- Assuming a signed term sheet guarantees the round closes, when it's still subject to diligence and definitive documentation
FAQ
Is a term sheet legally binding?
Mostly no. Most economic and control terms are non-binding intentions, but specific clauses like confidentiality and exclusivity typically do bind you the moment you sign.How long is a term sheet valid for?
There's no fixed rule, it's negotiable and usually stated explicitly in the document itself, often with an expiration date if it isn't countersigned within a set window.Can you negotiate a term sheet?
Yes. A term sheet is a starting offer, not a final decision, and founders regularly negotiate valuation, board composition, liquidation preference and other terms before signing.Do all funding rounds involve a term sheet?
No. Rounds raised entirely on SAFEs typically skip the term sheet stage since SAFEs defer valuation rather than setting it upfront.See also
- SAFE note
- Liquidation preference
- Board seat
- Pro-rata rights
- Ventures Platform, which funds Pre-Seed through Series A with priced-round terms at the later stages