Although a term sheet is generally not binding, it sets the economic and governance balance of the round. A provision accepted at this stage is rarely reopened in the share purchase agreement negotiations.
Liquidation preference, anti-dilution protection and whether the option pool is created before or after the round can affect effective ownership more than the valuation.
Veto rights, board composition and information rights should be given clear limits. Broad veto lists slow decision-making in later rounds.
Drag-along and tag-along rights should be balanced in the first round. Unbalanced terms can become a source of disputes between shareholders later.
Related practice area: Startup Law
This article is general information and does not replace legal advice. Legal Notice