Glossary · Fundraising process · Updated 28 August 2026
A term sheet is the two- to five-page document in which an investor sets out the conditions under which they propose to invest: valuation, amount, governance and protections. Apart from exclusivity and confidentiality it is not legally binding — but in practice what it contains is almost never renegotiated.
The term sheet arrives after the first meetings and before full due diligence. Its job is to confirm that founder and investor agree on the economics of the deal before either side spends tens of thousands of euros on lawyers. Signing it usually starts a thirty- to sixty-day exclusivity window during which you commit not to negotiate with another fund.
The document has two halves. The economic half says who puts in how much, at what valuation, and with what liquidation preference. The governance half says who decides what: board composition, veto rights, reporting obligations. Founders negotiate the first hard and the second barely at all, even though the second is what matters when decisions get difficult.
One detail is routinely misread: the size of the option pool and when it is created. A 10% pool created before the investment (pre-money) is paid for by founders alone. The same pool created afterwards (post-money) is paid for by everyone, investor included. The difference is worth several points of ownership.
Example: a European seed term sheet
A startup raises €1M from a seed fund. These are the lines that actually matter in the document.
| Pre-money valuation | €4,000,000 |
|---|---|
| Amount raised | €1,000,000 |
| Post-money valuation | €5,000,000 |
| Investor ownership | 20% |
| Liquidation preference | 1x non-participating |
| Option pool | 10%, created pre-money |
| Governance | 1 board seat out of 3 |
| Exclusivity | 45 days |
| Binding clauses | Exclusivity and confidentiality only |
The 10% pool created pre-money quietly lowers what founders are actually valued at: the headline €4M covers the company plus the pool, which works out to an effective €3.6M for the founders.
The common mistake
Signing before modelling the post-round cap table. A participating liquidation preference or a pre-money pool can move the exit outcome by hundreds of thousands of euros without ever showing up in the valuation number everyone is discussing.
Frequently asked questions
Is a term sheet binding?+
No, with two exceptions: exclusivity and confidentiality clauses almost always are. The rest is a statement of intent. In practice, walking back a condition you accepted in the term sheet is badly received and often kills the round.
How long between term sheet and money in the bank?+
Six to twelve weeks in Europe: due diligence, drafting the shareholders' agreement and legal documentation, shareholder approval, then release of funds. A dataroom prepared in advance is the main lever for staying at the low end of that range.
Related terms
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