When raising institutional capital, startup founders quickly find themselves face-to-face with legal documents that can shape their company’s future. Chief among them is the term sheet—a concise yet powerful document that outlines the key terms of a proposed investment. The NVCA Term Sheet Series, published by the National Venture Capital Association (NVCA), has become the industry standard in U.S. venture financing deals, offering a transparent and balanced framework for founders and investors alike.

What Is the NVCA Term Sheet?

The NVCA Term Sheet is a model legal document used as a template for venture capital transactions. While it is non-binding (except for specific clauses like confidentiality and exclusivity), it serves as the blueprint for the definitive legal agreements that follow—primarily the Stock Purchase Agreement, Amended Charter, and Investor Rights Agreement.

NVCA model documents are widely used because they:

• Standardize expectations between parties
• Reduce legal negotiation time and costs
• Reflect market norms that evolve over time
• Are supported by top-tier law firms and VC funds

Key Components of the NVCA Term Sheet Series

Each NVCA term sheet is structured around several key categories. Here’s a high-level overview:

1. Valuation & Securities

• Pre-money valuation: The company’s value before the investment.
• Amount raised: Size of the current round.
• Type of shares: Typically preferred stock, which grants investors certain rights not given to common shareholders.

2. Investor Rights

• Board composition: How many seats the investor(s) will get.
• Information rights: Access to financial and operational reports.
• Pro rata rights: Right to participate in future rounds.

3. Economic Terms

• Liquidation preference: Determines payout order in an exit.
• Dividends: Typically non-cumulative and optional.
• Anti-dilution protection: Usually “weighted average” to adjust for future down rounds.

4. Control Terms

• Protective provisions: Investor veto rights over certain major decisions.
• Drag-along rights: Allows majority holders to force minority shareholders to go along with a sale.
• Voting rights: Often mirror common stock but include key carve-outs.

5. Other Provisions

• Founder vesting: Often re-imposed during Series A.
• Right of first refusal (ROFR) and co-sale rights
• Exclusivity/No-shop clause (binding)

Why It Matters for Founders

While some founders view legal docs as boilerplate, the truth is that small tweaks can have outsized consequences—especially during exits, down rounds, or board disputes. Understanding the NVCA term sheet helps founders:

• Negotiate with confidence
• Avoid misaligned investor relationships
• Protect long-term equity value and decision-making power

Market Standard, Not One-Size-Fits-All

Although NVCA templates are widely accepted, they are not prescriptive. Terms are often negotiated based on company stage, investor leverage, and market conditions.