Seed Term Sheet Template (Annotated for Founders)
last updated: Feb 9, 2026
Most founders treat a term sheet like a victory lap, but I see it as the moment you are most likely to lose control of your cap table. This annotated guide highlights the exact clauses where investors bury their leverage so you can negotiate without getting wrecked.
Before you sign anything, understand that the term sheet is the blueprint for your company's future governance and economics. Getting it right now saves you from a cap table nightmare later.
Before you sign anything, understand that the term sheet is the blueprint for your company's future governance and economics. Getting it right now saves you from a cap table nightmare later.
TL;DR: The cheat code
A seed term sheet template is a non-binding blueprint outlining the valuation, governance, and economic rights of a deal before expensive lawyers draft the final contracts.
Key bullets
How to read this: I have separated the standard "Legal Boilerplate" into code blocks and added my "Founder Note" below each section to explain the reality.
Key bullets
- Benchmark: Expect an available option pool in the 10–15% range post-money.
- Rule: Never accept "Participating Preferred" stock; stick to "1x Non-Participating."
- Warning: The "No Shop" clause binds you to one investor for 30–45 days, killing your leverage with other firms.
How to read this: I have separated the standard "Legal Boilerplate" into code blocks and added my "Founder Note" below each section to explain the reality.
Glossary
- Pre-money Valuation: The value of your startup before the new cash hits the bank; this number determines the price per share.
- Liquidation Preference: The payout order during an exit, dictating that investors get their money back before common shareholders (you) see a dime.
- Pro Rata Rights: A contractual right allowing major investors to maintain their ownership percentage in future funding rounds to avoid dilution.
- Protective Provisions: A list of corporate actions (like selling the company or issuing debt) that require investor veto power, even if the founders hold a board majority.
How to structure your seed term sheet
1. The financials
OFFERING TERMS
Security: Series Seed Preferred Stock
Valuation: $[X] million pre-money valuation.
Investment Amount: $[Y] million.
Option Pool: An unallocated employee option pool representing [Z]% of the fully-diluted post-money capitalization.
Founder Note: The option pool is the biggest hidden price cut. Investors usually demand this comes out of the pre-money valuation. If they ask for 15–20%, they are effectively lowering your valuation by that amount. Fight to keep this closer to 10% if you are early-stage, or calculate exactly how many hires you need for the next 18–24 months. Check my notes on cap table audits to see how this impacts you long-term.
2. The payout (liquidation)
LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution, or winding up of the Company, the holders of Series Seed Preferred Stock shall be entitled to receive, prior and in preference to the Common Stock, an amount equal to one times (1x) the Original Issue Price plus declared but unpaid dividends.
Balance of proceeds shall be distributed pro rata to Common Stock holders.
Founder Note: This must say 1x Non-Participating. If you see "Participating Preferred," it means the investor gets their money back plus their share of the remaining pot (double dipping). This is predatory in a seed deal. Review specific liquidation preference examples to see the math on how this kills your exit value.
3. Board control
BOARD OF DIRECTORS
The Board shall consist of [3] members:
1. One (1) representative designated by the Lead Investor.
2. Two (2) representatives designated by the Common Stock (Founders).
Founder Note: At the seed stage, you should retain board control (2-1 split). If they ask for a 2-2-1 split (two founders, two investors, one independent), you effectively lose control because the "independent" usually sides with the money. Keep the board small and founder-led as long as possible.
4. Investor rights
MAJOR INVESTOR RIGHTS
Pro Rata Right: Investors who purchase at least $[Amount] ("Major Investors") shall have the right to participate in subsequent equity financings to maintain their ownership percentage.
Information Rights: Major Investors shall receive quarterly financial statements and an annual budget.
Founder Note: Pro rata rights are standard for lead investors but can clog up your cap table if given to every small angel. Set a threshold (e.g., must invest $250k+) to qualify as a "Major Investor." This keeps your admin burden low.
5. Binding terms
EXCLUSIVITY / NO SHOP
The Company agrees not to solicit, encourage, or accept any other offers for the acquisition of equity securities for a period of [30-45] days from the date of this Term Sheet.
Founder Note: This is the only part of the term sheet that is usually legally binding. Once you sign this, your ability to create a bidding war is over. Do not sign this until you are 90–95% sure you want to close with this specific partner.
OFFERING TERMS
Security: Series Seed Preferred Stock
Valuation: $[X] million pre-money valuation.
Investment Amount: $[Y] million.
Option Pool: An unallocated employee option pool representing [Z]% of the fully-diluted post-money capitalization.
Founder Note: The option pool is the biggest hidden price cut. Investors usually demand this comes out of the pre-money valuation. If they ask for 15–20%, they are effectively lowering your valuation by that amount. Fight to keep this closer to 10% if you are early-stage, or calculate exactly how many hires you need for the next 18–24 months. Check my notes on cap table audits to see how this impacts you long-term.
2. The payout (liquidation)
LIQUIDATION PREFERENCE
In the event of a liquidation, dissolution, or winding up of the Company, the holders of Series Seed Preferred Stock shall be entitled to receive, prior and in preference to the Common Stock, an amount equal to one times (1x) the Original Issue Price plus declared but unpaid dividends.
Balance of proceeds shall be distributed pro rata to Common Stock holders.
Founder Note: This must say 1x Non-Participating. If you see "Participating Preferred," it means the investor gets their money back plus their share of the remaining pot (double dipping). This is predatory in a seed deal. Review specific liquidation preference examples to see the math on how this kills your exit value.
3. Board control
BOARD OF DIRECTORS
The Board shall consist of [3] members:
1. One (1) representative designated by the Lead Investor.
2. Two (2) representatives designated by the Common Stock (Founders).
Founder Note: At the seed stage, you should retain board control (2-1 split). If they ask for a 2-2-1 split (two founders, two investors, one independent), you effectively lose control because the "independent" usually sides with the money. Keep the board small and founder-led as long as possible.
4. Investor rights
MAJOR INVESTOR RIGHTS
Pro Rata Right: Investors who purchase at least $[Amount] ("Major Investors") shall have the right to participate in subsequent equity financings to maintain their ownership percentage.
Information Rights: Major Investors shall receive quarterly financial statements and an annual budget.
Founder Note: Pro rata rights are standard for lead investors but can clog up your cap table if given to every small angel. Set a threshold (e.g., must invest $250k+) to qualify as a "Major Investor." This keeps your admin burden low.
5. Binding terms
EXCLUSIVITY / NO SHOP
The Company agrees not to solicit, encourage, or accept any other offers for the acquisition of equity securities for a period of [30-45] days from the date of this Term Sheet.
Founder Note: This is the only part of the term sheet that is usually legally binding. Once you sign this, your ability to create a bidding war is over. Do not sign this until you are 90–95% sure you want to close with this specific partner.
Benchmarks
The most common place founders lose equity is the "Option Pool Shuffle." Investors want the pool created before they invest (Pre-Money), meaning the dilution comes 100% from your shares, not theirs. According to Carta's 2025 benchmarks, the standard pool size is now 10–15% (median around 11.8%).
Sample math
Scenario: You raise $2M on an $8M pre-money valuation ($10M post-money). You agree to a 10% option pool.
Sample math
Scenario: You raise $2M on an $8M pre-money valuation ($10M post-money). You agree to a 10% option pool.
- If Pool is Post-Money (Founder Friendly): The pool is 10% of $10M ($1M). The dilution is shared by everyone.
- If Pool is Pre-Money (Investor Friendly): The pool is created before the investment. Your $8M pre-money is effectively reduced to $7M to make room for the $1M pool. You just lost 12.5% of your company's value instantly before the check even cleared.
Term sheet vs SAFE
Before you commit to a full term sheet, ask if a SAFE (Simple Agreement for Future Equity) is better. Standardized by Y Combinator, SAFEs are faster and cheaper but kick the valuation can down the road.
If you are raising a small seed round, a full term sheet might be overkill. Check the detailed comparison on Term Sheet vs SAFE.
- SAFE: Best for raises under $2M–3M. Costs $2k–$5k in legal fees. No board seats. No maturity date.
- Priced Round (Term Sheet): Best for raises over $3M. Costs $15k–$30k in legal fees. Grants board control and explicit governance rights.
If you are raising a small seed round, a full term sheet might be overkill. Check the detailed comparison on Term Sheet vs SAFE.
Risks
Investors will tell you these terms are "standard market practice." Use the NVCA Model Legal Documents to verify, but be wary of these specific traps:
- The 2-2-1 Board: 2 Founders, 2 Investors, 1 Independent. The "Independent" is rarely truly neutral and often votes with investors to protect future funding relationships. Result: You lose control.
- Participating Preferred: Investors get their money back and keep their ownership % in the remaining exit proceeds. This "double dipping" can reduce founder payouts by 10–20% in a mediocre exit.
- Broad Blocking Rights: Ensure investors can only veto major decisions (like selling the company), not operational ones (like hiring a VP of Sales or changing the budget by 5%).
Conclusion
A term sheet doesn't generate revenue; it only protects the value you haven't built yet. Don't over-optimize legal terms at the expense of product velocity. If you can't reach $10k MRR, the cleanest 1x non-participating preferred terms won't save you. Sign the deal that gives you enough runway and control to actually build a business, then get back to work.
FAQ
- You:Is a seed term sheet legally binding?Guide:Generally, no. Most of the document is a non-binding expression of intent. However, the "Exclusivity" (No Shop) and "Confidentiality" clauses are almost always legally binding contracts.
- You:Should I use a lawyer for a seed round?Guide:Yes. While you can use templates for reference, never sign a term sheet without a lawyer reviewing it. The cost range of $5,000–$10,000 for counsel is cheaper than fixing a bad cap table later.
- You:What is a standard vesting schedule for founders?Guide:Investors will expect you to reset your vesting. The standard is a 4-year vesting schedule with a 1-year cliff. This means if you leave before 12 months, you walk away with zero equity.
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