A term sheet is two pages of flattering numbers and six pages of clauses. Guess where the real negotiation happens. A €12m valuation with the wrong clauses can pay you less at exit than a well-structured €9m one. Here's what matters, in order of importance.
1. Liquidation preference
By far the most important clause after the valuation. It decides who gets what, and in what order, when the company is sold.
- 1x non-participating: the investor gets back their money or their pro rata share, whichever is higher. It's the market standard in France. Acceptable.
- Participating: the investor gets back their money and their pro rata share of what's left. They get paid twice. Refuse it or cap it, unless you get something serious in return on the valuation.
- Multiple above 1x: a 2x or 3x preference crushes the founders in most exit scenarios. Red flag.
Always run the numbers: model what everyone gets for an exit at 1x, 2x and 5x the round's valuation. The results often come as a surprise.
2. Anti-dilution
Protects the investor if a future round happens at a lower valuation (a down round).
- Weighted average (broad-based): a weighted adjustment, the market standard. Acceptable.
- Full ratchet: the investor's entire stake is repriced at the new price, and the dilution lands on you. Refuse it in 99% of cases.
3. Governance
Board composition, reserved matters (the decisions subject to the investor's veto), information rights. Two principles:
- Vetoes should cover the decisions that shape the company (merger, sale, new round, budget), not day-to-day management. A veto on “any hire above €60k” at a hypergrowth company is micromanagement written into a contract.
- Keep a board majority for as long as you can defend it, and choose any independent member with care: they often hold the casting vote.
For an impact company, this is also where you protect the mission: writing impact into the reserved matters or the articles of association stops a future shareholder from sacrificing it at the first trade-off.
4. Founder vesting and leaver clauses
Re-vesting your own shares over 3 or 4 years has become common, even at Series A. Negotiate the start date (get credit for the years you've already put in), acceleration on a sale, and above all the definition of bad leaver: it should cover gross misconduct, not a simple strategic disagreement. A bad leaver clause drawn too wide is a sword of Damocles hanging over your wealth.
5. Exclusivity, conditions and fees
- No-shop: the exclusivity requested during due diligence. Limit it to 45-60 days. Beyond that, you're a prisoner of an investor who can renegotiate downwards with no competition.
- Conditions precedent: the more of them there are, and the vaguer they are, the less your term sheet is worth. A term sheet almost never legally commits anyone to closing: its value is the reputation of whoever signs it.
- Fees: charging the investor's legal fees back to the company is standard practice, but cap them.
How to negotiate all this
Three rules. One: negotiate the package, never clause by clause, so you can trade one point for another. Two: create competition upfront, because the best clause in any negotiation is still a second term sheet on the table. Three: have it reviewed by a specialist venture capital lawyer and stress-test the economics of the clauses with your investment banker: the lawyer tells you what's written, the banker tells you what it will cost you.
That's exactly what we do in our fundraising mandates: the term sheet negotiation is where a few weeks of work change the real value of your deal.
