Thu. Feb 22nd, 2024

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What Is A Startup Seed Term Sheet?

A startup seed term sheet is an initial, formal (though often non-binding) document that sets out the terms of an investment agreement between a founder and an investor; it sets the initial, or ‘seed’, capital that will be provided by the investor. This sheet is usually a starting point for negotiations which, when completed and an agreement reached, are then set out in a written contract.

A good term sheet is one that seeks to align the interest of both the investors and founders in a startup so that they are in agreement rather than being pitted against each other. While each term sheet will be different depending on the specifics of the startup and investment made, certain areas are usually covered including the initial valuation of the startup, how option pools will be divided between current and future employees, the liquidation preference of investors if the startup fails, whether participation rights will be offered and how dividends will be paid out to shareholders.