What a Seed Term Sheet Actually Says — Clause by Clause

This is sample content written to demonstrate the layout.

A term sheet is a short document with long consequences. Most first-time founders focus on the pre-money valuation. Experienced founders read everything else first.

Liquidation preference

A 1x non-participating preference is the market standard at seed. Anything above that — or a participating preference — means investors are paid twice before common shareholders see a return.

"The valuation is the number you announce. The preference stack is the number you live with."

Pro-rata rights

Pro-rata lets an investor keep their ownership percentage in later rounds. It is reasonable, but granting it to every small check can crowd out the lead investor you need next.

Board composition

At seed, a common structure is two founder seats and one investor seat. Giving up board control this early is rarely necessary.

Before you sign

Have a startup attorney review the document. Ask the investor for references from founders whose companies did not succeed — that is where you learn how they behave.