What a deeptech term sheet actually says
Deeptech term sheets hide commercial assumptions inside legal language. Here is how to read the clauses that matter before you sign.
A term sheet is not a love letter. It is a rough map of who owns what, who decides what, and who gets paid if things go well or badly. Founders who read it carefully save themselves years of pain. Founders who sign because they are excited about the term and the brand of the investor often regret it.
This is not legal advice. Every jurisdiction is different and every company has its own context. But there are a handful of terms that come up repeatedly in deeptech rounds, and they deserve to be understood in plain language before you hire a lawyer.
Valuation and the pre-money trap
The headline number is usually the post-money valuation. The number that matters is the pre-money valuation, because that tells you how much of the company the new investor is buying. A five million post-money round with one million invested means the investor owns twenty percent. A five million pre-money round with one million invested means the investor owns roughly seventeen percent. The words pre and post sound similar. The ownership difference is not.
Do not optimise for the highest valuation. Optimise for a valuation that leaves you enough room to raise the next round at a sensible step up. A valuation that is too high makes the next round a down round if you do not hit the milestones. A down round is worse than a slightly lower initial valuation.
Liquidation preference: who gets paid first
A one times non-participating liquidation preference is standard. It means the investor gets their money back first in a sale, and then nothing more. A participating preference means the investor gets their money back and then shares in the remaining proceeds. That can dramatically reduce the founder payout in a modest exit.
Founders often focus on the multiple and miss the participation. A one times participating preference is much worse for founders than a two times non-participating preference. Ask the question directly: is this participating or non-participating?
Anti-dilution: who pays for a down round
Anti-dilution provisions protect investors if the next round is at a lower valuation. A broad-based weighted average is normal. A full ratchet is aggressive and can wipe out founders in a down round. Most reputable investors do not ask for a full ratchet in a seed round. If you see one, treat it as a red flag and push back hard.
Board control and decision rights
In a typical seed or Series A, the board has two founders, one investor, and maybe an independent. That sounds balanced until you realise that every meaningful decision needs board approval. The investor seat has real power. Pay attention to which decisions require board consent, especially around fundraising, M&A, and spending beyond a threshold.
Also watch for veto rights outside the board. An investor approval right over future financing, for example, can block your next round if relations sour. These are standard in some form, but the scope matters enormously.
Founder vesting and leaver provisions
Vesting is good for everyone when it is fair. It means if a founder leaves early, they do not keep all their shares. The questions are the schedule, what happens on a good leaver versus bad leaver, and whether vesting accelerates on a sale. Bad leaver provisions that are too broad can trap founders. Good leaver provisions that are too narrow can leave a departing founder with nothing.
The term sheet is the start of the negotiation
Everything in a term sheet is negotiable. The best time to negotiate is before you sign it. Once signed, the leverage shifts. Do not be afraid to ask questions. A good investor expects founders to understand what they are signing.
If you are preparing for your first term sheet and want the commercial side of the company as well presented as the technical side, here is how we help founders get ready.