A term sheet is a non-binding document that summarises the key commercial terms of a proposed investment before the parties invest the time and cost of drafting final legal agreements. It covers the investment amount, valuation, ownership percentage, type of shares, and major investor rights.
Key clauses in a term sheet
- Pre-money valuation and post-money ownership percentage
- Instrument: equity, CCPS, convertible note, SAFE
- Liquidation preference**: 1× non-participating vs participating
- Anti-dilution**: weighted-average vs full-ratchet
- ROFR, drag-along, tag-along** rights
- Board seats and information rights
Why it matters for unlisted shares
The term sheet defines the investor rights that sit above ordinary equity. As a buyer of unlisted ordinary shares, understanding the terms granted to VC/PE investors — especially liquidation preferences and anti-dilution — tells you how much cushion institutional investors have before your shares lose value.
Example: A term sheet with a 2× participating liquidation preference means VCs take 2× their investment before ordinary holders get anything — significant in a modest-exit scenario.