The term sheet, line by line
Every clause you'll see in a UK seed term sheet, what it means in plain English, what's market in 2026, what's a try-on, and which three to push back on before you sign.
A term sheet is the one- to three-page summary of the deal before the lawyers write the forty-page version. It is usually expressed as non-binding, and it is the most important document in the raise, because everything in the long-form documents follows from it. Founders who negotiate the long-form and not the term sheet find they are arguing about wording when the substance was agreed weeks ago. Here is what each line means and where the market sits.
Economics
- Amount and pre-money valuation. The price. Say which valuation basis (pre or post) in the document itself.
- Instrument. Ordinary shares (market for SEIS/EIS rounds); preference shares (institutional; ask for 1× non-participating if you cannot avoid them).
- Option pool. Size and whether it is created pre- or post-money. Market: 5–10%, sized to the hiring plan; try-on: 15% pre-money with no plan behind it.
- Liquidation preference. Only with preference shares. 1× non-participating is market; anything participating or above 1× at seed is a try-on.
- Anti-dilution. Protects the investor if a later round is priced lower. Broad-based weighted average is market; full ratchet is a try-on and should be refused.
Control
- Board. Founders plus an investor director, sometimes an observer, is market for a lead investor putting in £250k+. An investor board majority at seed is a try-on.
- Consent matters (investor majority consent). A list: issue shares, borrow over £X, sell the business, change the articles, approve the budget, hire or fire the CEO, spend over £Y outside budget. Market is a list of 10–20 items with sensible thresholds. Push back on low thresholds (approval for every £5k spend) and on "any material change", which means whatever the investor later says it means.
- Information rights. Monthly management accounts, annual accounts, budget, access to records. Market; just make sure you can actually produce monthly accounts.
Founder terms
- Vesting. Founder shares vest over three or four years, often with part vested on day one for time already served. Market. Push for recognition of time already put in.
- Good leaver / bad leaver. Good leavers keep vested shares; bad leavers can have all shares bought back at nominal value. Bad leaver should mean fraud, gross misconduct, breach of restrictive covenants — not resignation or dismissal without cause. This is one of the three to push back on.
- Restrictive covenants. Non-compete and non-solicit for a period after leaving. Twelve months is market; twenty-four is a try-on.
- Founder service agreements. Employment terms, salary, notice. Agree your salary here; investors dislike founders paying themselves from the raise without a number being agreed.
Transfer and exit
- Pre-emption. Existing holders get first refusal on new shares and on transfers. Market.
- Drag-along. A majority (market: 75% by value, sometimes requiring investor majority consent too) can force a sale. Check that founders are included in the majority calculation.
- Tag-along. Minorities can join a sale on the same terms. Market; make sure it protects founders too.
- Co-sale / right of first refusal on founder shares. Investors can buy or join if a founder sells. Market.
Process
- Exclusivity. 30–60 days during which you do not talk to other investors. Acceptable with a lead; refuse it to an investor who has not committed the money.
- Conditions. Satisfactory due diligence, SEIS/EIS advance assurance, key-person insurance, IP assignments. Normal.
- Costs. Who pays the investor's legal fees. Market at seed: each side bears its own, or the company pays the investor's up to a cap (£5–15k). Uncapped is a try-on.
- Warranties. Given by the company (and sometimes founders), capped at the investment, limited in time (12–24 months), subject to a disclosure letter. Founders giving personal uncapped warranties is a try-on.
The three to push back on
- Bad-leaver definitions that include resignation.
- Option pool created pre-money without a hiring plan.
- Consent lists with thresholds that make the investor the operator.
Questions founders ask
"Is the term sheet binding?"
Usually only the confidentiality, exclusivity and costs clauses are. Everything else is "subject to contract" — but in practice, whatever you agree here is what you get.
"Should I sign before a solicitor has seen it?"
No. A solicitor who does seed rounds will read a term sheet for a fixed fee and tell you what is market. It is the best money in the raise.
"The investor says these are their standard terms."
Everything is negotiable and everyone says that. Decide which three matter and trade the rest.