The email arrives. An investor sends you the term sheet. The temptation to skim it quickly, say yes and tell your co-founder over a bottle of cava is understandable. Almost universal. And almost always a mistake.

The term sheet is not the final agreement, but it sets the conditions on which everything else will be built. Some of those conditions may also be binding from the outset. Ignoring its key clauses is like signing an apartment lease without checking what happens if you need to leave early.

The document that looks simple, but is not

A standard term sheet covers three main areas: economic terms, control rights and protective provisions. Confusing them, or overlooking any of them, can have consequences that only become visible in the next round, in an exit or, in the worst case, in a crisis between shareholders.

The first area starts with the pre-money valuation: what your company is worth before the new money comes in. If your startup is valued at four million euros pre-money and the investor puts in one million euros, the post-money valuation is five million euros and the investor will own twenty percent of the company.

The maths looks simple. But the actual percentage can change if an ESOP, or employee stock option pool, is included in the negotiation, as is often the case. That pool is usually expressed as a percentage of the company’s capital after the round, but it is often created before the new investor comes in. As a result, the dilution mainly falls on the founders and existing shareholders.

The second area covers control rights: board seats, voting rights on reserved matters and regular information rights. Here, the difference between a financial investor and a strategic investor such as a corporate venture capital fund is significant.

In a deal with a CVC, more strategic clauses may appear. For example, enhanced information rights, access to data, commercial agreements or exclusivity in certain areas. These are not necessarily negative, but they deserve specific attention and legal advice before being accepted.

The clauses that define who wins when there is money, or when there is not

Protective provisions are often the ones that create the biggest surprises. The liquidation preference determines who gets paid first, and how much, in the event of a sale or liquidation.

A 1x non-participating liquidation preference gives the investor the right to be paid first up to the amount invested, provided there are sufficient funds. After that, the investor does not participate in the remaining proceeds, unless it is more favourable to convert the preferred shares into ordinary shares. A participating structure, or a preference with a multiple higher than 1x, can significantly reduce what founders receive, even in an exit that appears successful.

The anti-dilution clause protects the investor if future rounds are closed at a lower valuation than the current one, known as a down round. There are two main types: full ratchet, which is very aggressive for founders, and weighted average, which is more common and more balanced. Understanding which one applies is critical before closing a round.

Drag-along and tag-along clauses regulate what happens in a sale. A drag-along clause can force certain shareholders to sell if the agreed approval thresholds are met. A tag-along clause gives minority shareholders the right to sell on the same terms when a relevant shareholder sells its stake. Both are common, but their activation thresholds and specific conditions make a real difference.

Finally, pro-rata rights allow the investor to maintain its ownership percentage in future rounds. In sectors such as healthtech or insurtech, where rounds can be long and sizeable, this right can affect the space available for new investors.

The choice of instrument also matters. Closing an equity round is not the same as signing a SAFE or a convertible note.

In an equity round, the company sets a valuation, an ownership percentage and specific investor rights from the start. It is a more complete structure and usually requires more negotiation. But it also provides greater clarity on what the cap table looks like after the round.

A SAFE and a convertible note work differently. They allow the process to move faster because part of the discussion is deferred to a future round. A convertible note is debt that can convert into equity. A SAFE, by contrast, is not debt in its standard form: it is an agreement that gives the investor the right to receive shares or equity interests if certain conversion events occur.

That is why they are common in Pre-seed and Seed stages. They can be useful when a company needs to raise quickly or when it is still difficult to set a valuation. But they are not neutral. Their future impact on dilution and the cap table needs to be properly understood before signing.

The term sheet is a map, not the territory

A well-negotiated term sheet does not guarantee a startup’s success. But a poorly understood term sheet can compromise its future.

Founders who enter this negotiation with their own criteria, and with a lawyer specialised in venture capital, make better decisions. Not necessarily more favourable decisions, but more informed ones.

The NVCA model documents and other resources from the Spanish ecosystem, such as Delvy or Nexen Capital, can be useful starting points. They help founders understand what is usually standard and what deserves closer review.

When the investor is strategic, the review should be even more careful. Information rights, exclusivity clauses or geographical restrictions may make sense within the corporate relationship. But they can also limit future rounds, collaborations with third parties or a potential exit.

A term sheet is not the end of the conversation. It is, in fact, the beginning of everything that comes next. And, as specialised lawyers often say: what is not properly written down is rarely interpreted as you expected.