What a venture term sheet actually commits you to

A term sheet is mostly a statement of intent. The exceptions are important enough that signing one without reading closely is a mistake.

What binds

**Exclusivity** — often called no-shop — prevents you soliciting or negotiating with other investors for a period. Sign it and your alternatives are frozen while diligence runs.

**Confidentiality** restricts what you can say about the terms.

**Expenses** may commit you to pay the investor's legal costs, sometimes capped, sometimes payable even if the deal does not close.

The economic terms

• **Valuation and amount**, and whether the pool is pre- or post-money.
• **Liquidation preference** — how much the investor receives before common holders on an exit. One times, non-participating is the common baseline; participating preferences take a share again afterwards.
• **Anti-dilution** — what happens if a later round prices lower. Broad-based weighted average is standard; full ratchet is aggressive.

The control terms

• **Board composition**, which decides who actually runs the company.
• **Protective provisions**, listing decisions requiring investor consent.
• **Information rights** and **pro rata rights** for future rounds.

Practical points

• Read the binding clauses first.
• Model the exit waterfall under the proposed preference at several exit values, including low ones.
• Count board seats after the round, not before.
• Have counsel review before signing, not after.