Introduction

A term sheet looks simple, but do not be fooled. It is like an iceberg: 10% visible, 90% hidden. Behind the headline valuation and investment amount lie clauses that can reshape your future as an entrepreneur. If you do not understand them, you risk losing control, value, and flexibility. At dups, we help you decode, negotiate, and protect your long-term interests.  

What is a term sheet?

A term sheet is a concise, non-binding document that outlines the key terms and conditions of a proposed investment in a fundraising round (equity or convertible). It summarises the main financial, legal, and governance points, such as valuation, investment amount, ownership structure, and investor rights, before the parties move on to full due diligence and drafting the final, legally binding agreements.

Purpose of a term sheet:

• Alignment: It ensures that founders and investors are aligned on the most important aspects of the deal before investing significant time and resources in due diligence and legal work.

• Negotiation tool: The term sheet is the main stage for negotiating the “big picture” terms. It allows both sides to clarify expectations, resolve potential deal-breakers early, and avoid misunderstandings later in the process.

• Selection lever: In competitive fundraising rounds, the term sheet must be clear, credible, and attractive enough to be selected by the company. It is the first round of acceptation, signalling which investor is serious, well-prepared, and likely to close.

• Roadmap for legal agreements: Once agreed, the term sheet acts as the foundation for drafting the detailed, binding contracts (such as the shareholders’ agreement). It streamlines the legal process by providing a clear reference point for lawyers and advisors.

• Process accelerator: By setting out the main terms upfront, a term sheet helps accelerate the transaction, saving time and reducing the risk of last-minute surprises.

Why term sheets matter

The term sheet is the foundation of your deal. It sets the tone for governance, exit rights, and economic outcomes. Once signed, it becomes the blueprint for the shareholders’ agreement. Every clause matters because it defines who gets paid first, who controls decisions, and what happens if things go wrong.

Key clauses you cannot ignore

Here are the clauses that change everything:

- Liquidation Preference: Safety net for investors, enabling them to recover their money first in the event of a sale or liquidation, sometimes with a guaranteed return.

- Anti-Dilution Protection: This is a general mechanism that protects investors from dilution when new shares are issued at a lower price than they paid. Common types:

o Weighted Average Anti-Dilution: Adjusts the conversion price based on the weighted average of the new share price and the old price.

o Full Ratchet Anti-Dilution: Adjusts the conversion price to the new lower price, regardless of how many shares are issued.

- Leavers (Good and Bad): Define what happens if an entrepreneur leaves or is forced to leave. The presence of leaver mechanics is standard, but definitions, vesting schedules, and pricing are negotiated with care because they strongly affect founder outcomes.

- Board Composition and Reserved Matters: Secure a balance of power at board level and understand which decisions require investor consent.

- Remuneration: Define how much you will be paid, including salaries, bonuses, and equity-linked compensation.

- Share Transfer: Key terms include lock-up periods, pre-emption rights (right of first refusal), tag-along, and drag-along provisions to protect both majority and minority shareholders.

- Exit: Define when and how the company can be sold. Make sure both entrepreneurs and investors are aligned on exit strategies and timing.

What happens after a term sheet is signed?

Signing a term sheet is a major milestone, but it’s only the beginning of the formal transaction process. Here’s what typically happens next:

1. Due Diligence Begins

- Investors or buyers will conduct a thorough review of your company’s financials, legal documents, contracts, intellectual property, HR records, and more.

- This process can take several weeks and may involve requests for additional information or clarification.

- Any issues uncovered during due diligence can lead to renegotiation of terms or, in rare cases, withdrawal from the deal.

2. Drafting of Binding Agreements

- Lawyers use the term sheet as the blueprint to draft the final, legally binding contracts (e.g., Shareholders’ Agreement, Share Purchase Agreement, Investment Agreement).

- These documents are far more detailed and will cover all aspects of the deal, including representations, warranties, indemnities, and closing conditions.

3. Final Negotiations

- While most major points are settled in the term sheet, some details may still be negotiated as the binding agreements are drafted.

- Both sides review the documents, clarify ambiguities, and resolve any outstanding issues.

4. Satisfying Conditions Precedent

The term sheet and final agreements often specify certain conditions that must be met before closing (e.g., regulatory approvals, board or shareholder consent, completion of due diligence).

Both parties work to fulfil these requirements, sometimes with the help of advisors.

5. Closing the Transaction

Once all conditions are met and documents are signed, the transaction is formally closed.

Funds are transferred, shares are issued or sold, and any changes to governance or management take effect.

6. Post-Closing Integration or Reporting

- In M&A, this may involve integrating teams, systems, and operations.

- In funding rounds, founders may need to provide regular updates, financial reports, or fulfil other investor requirements as agreed.

The Belgian reality

While a lot of American VCs keep it simple and respect the templates of the NVCA (National Venture Capital Association), Belgian and European VCs can get more creative in their term sheets. Term sheets are not just legal paperwork, they are strategic weapons. Handle them with care.

Dups’ approach

At dups, our lawyers do not just review term sheets. We negotiate them. We challenge clauses that put your future at risk. We protect your interests while keeping the deal attractive for investors . The goal is always to strike the right balance between incentivizing the entrepreneurs and protecting the investors. We bring 35 years of conflict resolution expertise through our mother company, and we know how important it is. Our dual expertise in law and finance means we see the full picture: finance, governance, and long-term impact.

Ready to negotiate like a pro?

Download The Founder’s Guide to Fundraising in Belgium and learn:

• How to decode the clauses that matter.

• How to avoid traps that cost millions.

• How to negotiate from a position of strength.

Download the full guide now and raise on your own terms.

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