Swipe File: B2B Term Sheet Examples (Clauses & Red Flags)
last updated: Feb 8, 2026
Raising capital is a funnel, and the term sheet is the contract waiting at the bottom. It defines your financial future and control over the company. This guide translates the "legalese" into plain English, helping you distinguish between standard market terms and traps that can wreck your equity.
TL;DR
These B2B term sheet examples represent the standard "market" terms for Seed and Series A rounds. This guide acts as a translation layer between "legalese" and founder survival, specifically highlighting the difference between founder-friendly and predatory terms.
Key bullets:
How to read this: We have stripped the legal fluff. Copy the clauses below to check against your own offer.
Key bullets:
- Benchmark: Typical founder dilution in a Seed round lands in the 20–25% range. Anything over 30% usually signals a weak negotiation position or a predatory fund.
- Rule: Never sign a term sheet with "Participating Preferred" stock without a cap. It is double-dipping that kills your exit returns.
- Warning: The "No-Shop" clause locks you in for 30–60 days. If the deal falls through, you are often dead in the water with zero leverage.
How to read this: We have stripped the legal fluff. Copy the clauses below to check against your own offer.
Glossary
- Liquidation Preference: Determines who gets paid first when the company is sold. Investors usually get their money back (1x) before you see a dime.
- Anti-Dilution: A protection mechanism for investors. If you raise money later at a lower valuation (down round), they get more shares to maintain their percentage ownership.
- Vesting: The schedule on which you "earn" your own stock. Standard is 4 years with a 1-year cliff.
How to structure a term sheet: Key clauses
Below are the three most critical clauses you will encounter. We have provided the "Standard Market" version and a "Founder Note" explaining the trap. For the official source of truth on legal templates, always refer to the NVCA Model Legal Documents.
1. Liquidation preference (The "Exit Math" clause)
This clause dictates the payout order. You want "1x Non-Participating." You want to avoid "Participating" at all costs.
Liquidation Preference:
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock, an amount equal to the Original Issue Price plus declared and unpaid dividends on each share of Series A Preferred Stock (the "Preference Amount").
After payment of the Preference Amount, the remaining assets shall be distributed ratably to the holders of Common Stock.
Founder note:
Watch out for the word "Participating" after the preference amount is paid. If the clause says the investors get their money back and then share in the remaining assets with common stock, that is "Participating Preferred."
2. Anti-dilution provisions (The "Down Round" shield)
This protects the VC if your valuation drops in the next round.
Anti-Dilution Provisions:
The conversion price of the Series A Preferred Stock will be subject to a "broad-based" weighted average adjustment to reduce dilution in the event that the Company issues additional equity securities at a purchase price less than the applicable conversion price.
Founder note:
Watch out for "Full Ratchet" anti-dilution. "Weighted Average" is standard (market norm). "Full Ratchet" is a death sentence; if you sell one single share later at a lower price, all their shares re-price to that low number, wiping out your ownership percentage. For more on how this impacts cap tables, review our term sheet calculator.
3. Board composition (The "Control" clause)
This decides who fires the CEO.
Board of Directors:
The Board shall consist of three (3) members:
(i) one (1) member elected by holders of Series A Preferred Stock [The VC];
(ii) one (1) member elected by holders of Common Stock [The Founder]; and
(iii) one (1) independent member elected by mutual consent of the Board [The Swing Vote].
Founder note:
Watch out for a 2-1 split where VCs control the majority (e.g., 2 VC seats, 1 Founder seat). The "Independent" seat is the most important negotiation point. If the VC chooses the Independent, it is effectively a 2-1 board against you.
1. Liquidation preference (The "Exit Math" clause)
This clause dictates the payout order. You want "1x Non-Participating." You want to avoid "Participating" at all costs.
Liquidation Preference:
In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock, an amount equal to the Original Issue Price plus declared and unpaid dividends on each share of Series A Preferred Stock (the "Preference Amount").
After payment of the Preference Amount, the remaining assets shall be distributed ratably to the holders of Common Stock.
Founder note:
Watch out for the word "Participating" after the preference amount is paid. If the clause says the investors get their money back and then share in the remaining assets with common stock, that is "Participating Preferred."
2. Anti-dilution provisions (The "Down Round" shield)
This protects the VC if your valuation drops in the next round.
Anti-Dilution Provisions:
The conversion price of the Series A Preferred Stock will be subject to a "broad-based" weighted average adjustment to reduce dilution in the event that the Company issues additional equity securities at a purchase price less than the applicable conversion price.
Founder note:
Watch out for "Full Ratchet" anti-dilution. "Weighted Average" is standard (market norm). "Full Ratchet" is a death sentence; if you sell one single share later at a lower price, all their shares re-price to that low number, wiping out your ownership percentage. For more on how this impacts cap tables, review our term sheet calculator.
3. Board composition (The "Control" clause)
This decides who fires the CEO.
Board of Directors:
The Board shall consist of three (3) members:
(i) one (1) member elected by holders of Series A Preferred Stock [The VC];
(ii) one (1) member elected by holders of Common Stock [The Founder]; and
(iii) one (1) independent member elected by mutual consent of the Board [The Swing Vote].
Founder note:
Watch out for a 2-1 split where VCs control the majority (e.g., 2 VC seats, 1 Founder seat). The "Independent" seat is the most important negotiation point. If the VC chooses the Independent, it is effectively a 2-1 board against you.
Benchmarks
When negotiating, you need to know what is "market standard" so you don't look inexperienced.
- Dilution: According to Carta's latest data, median dilution for Seed rounds hovers around 20.1%, while Series A rounds see about 20.5%. If an investor asks for 35%, they are outliers.
- Legal Fees: Do not overpay, but do not use a cheap generalist. For a priced Seed round, expect legal fees to range from $15,000 to $25,000. For Series A, costs typically jump to $30,000–$60,000 due to increased complexity (source).
Participating vs non-participating
The difference between these two terms is often the difference between walking away rich or empty-handed. Here is the math on a $10M exit where investors put in $2M for 20% ownership:
Result: You split the remaining $8M based on ownership.
Result: Total to investors is $3.6M. You lose an extra $1.6M instantly compared to Scenario A.
- Scenario A: Non-Participating (Good)
Result: You split the remaining $8M based on ownership.
- Scenario B: Participating (Bad)
Result: Total to investors is $3.6M. You lose an extra $1.6M instantly compared to Scenario A.
Risks
Beyond the financial terms, these clauses can kill your leverage.
- The No-Shop Clause: This prevents you from talking to other investors once you sign the term sheet. The standard duration is 30–60 days (source). If a VC asks for 90 days, they are trying to starve you of options while they decide if they really want to invest.
- Full Ratchet Anti-Dilution: As mentioned in the asset section, this is rare in healthy markets. If you see this, it implies the investor expects you to fail or raise a down-round immediately.
Conclusion
Mastering the legalese of B2B term sheet examples is a necessary defense, but it is not a growth strategy. You can negotiate a perfect "1x Non-Participating" term sheet, but if your product market fit is weak, you own 100% of nothing. Use these examples to protect your downside, then focus entirely on the founder questions that drive revenue and actually get you to $10M ARR.
FAQ
- You:Is a term sheet legally binding?Guide:Generally, no. Most sections (valuation, board seats) are non-binding. However, the "Exclusivity" (No-Shop) and "Confidentiality" clauses are binding. You cannot talk to other investors once you sign.
- You:How much should I pay for legal counsel on a term sheet?Guide:For a Seed or Series A round, legal fees typically range from $15,000 to $50,000 depending on the round's complexity. Do not use your cousin who practices family law. Use a firm that specializes in venture financing (e.g., Cooley, Fenwick) to avoid non-standard terms.
- You:What is the difference between this and a SAFE?Guide:A SAFE is not a priced round; it is a convertible security. Term sheets are for priced equity rounds. For early pre-seed, check the difference between a SAFE vs Convertible Note.
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