Term sheet.
aka heads of terms, letter of intent, investment terms
The deal, before the lawyers: the key terms of an investment on a few pages.
What it actually means
A term sheet is a short document that sets out the main terms of a proposed deal, most often an investment in a startup. It covers how much money is invested, at what valuation, and what rights the investor gets. It is usually mostly non-binding: a shared outline agreed before the full legal contracts are drafted.
When an investor wants to back a startup, nobody starts with a 60-page contract. First comes the term sheet: often just a few pages listing the headline points. Typical items include the amount being raised, the pre-money valuation, the type of shares, board seats, voting rights, liquidation preference (who gets paid first if the company is sold), and any vesting for founders. Once both sides sign it, lawyers turn it into the full, binding agreements.
The part people get wrong is the word non-binding. Most of the commercial terms are not legally enforceable, but some clauses usually are, such as confidentiality and an exclusivity period (often called a no-shop) that stops the founder from taking the deal to other investors for a few weeks. And even where terms are not binding, they are rarely reopened later without friction. In practice, the term sheet is where the real deal gets made, so founders typically get legal advice before signing, not after.
Where you'll hear it
We've got a term sheet: $3 million at a $12 million pre-money, one board seat, standard 1x non-participating preference.
Translation: an investor has offered money on specific terms, and if everything checks out, the company will sell about 20% of itself.
Also in acquisitions, where a similar document is often called a letter of intent, in commercial property and partnership deals, and in startup circles where founders compare offers from rival investors. A clean term sheet is one with few unusual or heavily investor-friendly clauses.
The pop-culture version
Imagine a small label wants to sign an up-and-coming band. Before anyone drafts a huge contract, the label sends over a single page: the advance, how many albums, the royalty split, who owns the recordings, and how long the deal lasts.
The band reads it, pushes back on a couple of points, and both sides agree. That page is not the contract, and mostly it does not lock anyone in. But it sets the shape. Once lawyers start writing the long version, nobody wants to reopen the royalty split from scratch.
A startup term sheet works the same way. The money, the valuation and the control rights are all agreed in that short outline. Miss a bad clause there and it will be sitting quietly in the final paperwork too.
The practical rule: treat the term sheet as the real negotiation. The headline valuation matters, but so do control terms like board seats, vetoes and preferences. Read every line, and have a lawyer who knows startup deals review it.
Say it like you mean it
“The valuation works for us, but before we sign the term sheet I want to understand the liquidation preference and the board composition.”
It shows the speaker knows the deal is about much more than the headline number.“It's only a term sheet, so we can sign anything and fix it later.”
Some clauses are usually binding, and terms agreed here are hard and costly to walk back.You might hear that the term sheet is signed but the round has not closed. That gap is due diligence and final documents, and deals can still fall through in it, so founders usually wait for money in the bank before celebrating.
A founder-focused blueprint to term sheets, explaining key clauses like valuation, preferences and control rights, and how to negotiate a deal that works.
Decoded next
Decoded by the Kurums editorial team. Kurums Decoded translates the language of business for people who are new to it. Definitions are kept short on purpose; the serious version above goes deep. Nothing here is financial, legal or career advice.
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