You've been working on this for years.

The sleepless nights in the lab. The grant rejections. The pivots.

Pitch after pitch after pitch. And then, one day, it happens - an investor says yes. A term sheet lands in your inbox.

For about 30 seconds, you feel pure joy and relief.

Then you open the document.

Liquidation preference. Broad-based weighted average anti-dilution. Protective provisions. Pro rata rights. Drag-along.

And just like that, the joy starts mixing with something else.

Confusion. A low-grade anxiety you can't quite name.

Because on one hand, this is everything you've been working toward.

On the other hand, you're staring at a document that will define the terms of your relationship with this investor for the next decade - and you're not entirely sure what you're agreeing to.

And here’s what makes this even harder - term sheets are genuinely sensitive documents.

You can't just post your term sheet in a founder Slack and crowdsource opinions.

You can't easily ask a peer because chances are, they haven't been through more than one term sheet themselves, and even if they have, this stuff is sensitive.

And while every founder's instinct is to call a lawyer, the reality is that a truly great startup attorney is expensive, hard to access, and often unavailable in the compressed timeline you're working with.

So, what do most first-time founders do? They trust the process. They assume the terms are standard. They sign.

Sometimes that works out fine. Sometimes it doesn't.

What I want to give you today isn't a substitute for good legal counsel - you should absolutely get that.

What I want to give you is a mental map. A way to walk into that conversation knowing what you're looking at, what's negotiable, and what actually matters.

Now, term sheets are a legitimately complex topic.

You could write a whole book about them. Several people have, and I'll link to the best ones at the end.

But that's not what today's issue is about.

My goal today is the opposite: to give you a simple framework for understanding term sheets that you can carry with you wherever you go.

My goal is that after a few minutes of reading this over your morning coffee, you should have a mental map that makes term sheets feel tangible instead of intimidating.

Ambitious? Maybe.

Possible? Let’s read on and find out :)

First: What is a term sheet, actually?

A term sheet is a short document, typically 5 to 10 pages, that outlines the proposed terms of an investment. It’s issued by the investor to your company before any binding legal agreements are signed.

Here's the key thing to know: a term sheet is almost entirely non-binding.

Neither you nor the investor is legally committed to following through on the deal.

There are two exceptions to this - the no-shop clause (more on this in a moment) and a confidentiality provision. But everything else is a framework for negotiation, not a legal contract.

The term sheet kicks off a process that ends with five binding legal documents: the Amended and Restated Certificate of Incorporation, the Stock Purchase Agreement, the Investors' Rights Agreement, the Voting Agreement, and the Right of First Refusal / Co-Sale Agreement.

Together, these can run 100+ pages. The term sheet is the 10-page summary of everything those documents will say.

And crucially - once you sign the term sheet, a no-shop clock starts ticking. You've agreed not to go talk to other investors for a specified window (typically 30–60 days).

Which means your best leverage to negotiate is before you sign, not after.

Every term sheet, regardless of investor, stage, or industry, can be organized into three buckets. Once you see this structure, the whole document becomes much easier to navigate.

Bucket 1: Economics

Who gets paid, how much, and in what order. This includes your valuation (pre-money and post-money), the option pool for employees, liquidation preferences, anti-dilution protections, and dividends. These terms define the financial outcome for everyone at exit.

Bucket 2: Governance & Control

Who makes the decisions. This includes board composition, protective provisions (investor veto rights over major decisions), and voting rights. These terms define who actually runs the company on a day-to-day and long-term basis.

Bucket 3: Founder & Investor Rights

The ongoing rights and obligations that govern your relationship after the money is in the bank. This includes founder vesting, pro rata rights (the investor's right to participate in future rounds), information rights, drag-along rights, and the no-shop period.

That's it. Three buckets. Every term in a term sheet lives in one of them.

When you get a term sheet, before you panic about the language, just ask: is this an economics term, a control term, or a rights term?

It immediately tells you what's at stake.

Not all terms are created equal. Some are market standard - fighting them wastes time and goodwill. Others are genuinely worth negotiating. And a few are red flags that warrant real scrutiny.

Here's how to categorize them.

Tier 1: Standard - Accept and move on

These terms appear in 90–95%+ of venture deals. Pushing back on them signals inexperience without changing your outcome.

Tier 2: Worth negotiating

These terms have real economic or governance consequences and are legitimately negotiable.

Tier 3: Red Flags - Get a second opinion before signing

These terms are either off-market for early-stage deals or carry disproportionate downside for founders.

Everything above applies to most of VC deals. But term sheets for biotech companies may have four additional layers worth understanding.

1. Milestone-based tranching

In most software deals, the full round amount closes in one shot. In biotech, it's common for the investment to be structured in tranches (installments that are released when you hit specific milestones). Think IND filing, Phase 1 initiation, top-line data readout, or an FDA designation.

This isn't inherently bad. It can actually reflect investor conviction in the science - they're willing to commit the full round, but structured around your development path.

The risk is timing: if your first tranche barely gets you to the milestone, any clinical delay, even one completely outside your control, can leave you cash-short with the next tranche not yet unlocked.

The watchout: make sure each tranche covers at least 12–18 months of runway to the milestone, plus a buffer. And negotiate flexibility in how milestones are defined - you want external, objective triggers (FDA acceptance, data readout), not internal ones that an investor can dispute.

2. IP ownership (PIIA)

In software, IP matters. In biotech, IP is the company. Before any deal closes, investors will require that every founder, employee, contractor, and consultant has signed a Proprietary Information and Invention Assignment Agreement (PIIA) - a document assigning all IP created in the course of their work to the company.

This is non-negotiable. Any gap here (e.g. work done before incorporation, contributions from a university lab, a consultant without a signed agreement) can surface during due diligence and stall or kill the deal. Get this done early, ideally at incorporation, and definitely before you enter any investor conversations.

One more thing: standard investor protective provisions include a veto on “selling, assigning, licensing, pledging, or encumbering material technology or intellectual property beyond ordinary-course licenses.”

In practice, this means any meaningful pharma partnership or sublicensing deal you pursue after closing will require investor board consent. Keep this in mind as you form your board and your BD strategy.

3. University/TTO license provisions (spinouts)

If your technology comes from a university lab, you're negotiating two frameworks simultaneously: the VC term sheet and the Technology Transfer Office (TTO) license.

The TTO layer adds equity grants to the university (typically 1–5%), royalties on future sales, milestone payments, and, most contentiously, a share of any sublicensing revenue from pharma partnerships.

That sublicensing split is the most common friction point in academic spinout negotiations. There's no universal standard. A coalition of universities, VCs, and law firms spent three years developing a standardized VC/TTO term sheet template (published through AUTM in 2022) specifically to reduce this friction.

If you're a spinout founder, that document is worth reading before you enter any term sheet negotiation (included in the Bonus Resources below).

4. Pay-to-play provisions

Pay-to-play requires existing investors to participate in a future down round or lose their preferential rights - most commonly, their anti-dilution protection and preferred stock status, which converts to common.

The nuance: in biotech, where down rounds are more likely given long development timelines and binary clinical events, this provision has real teeth. And counterintuitively, it can work in your favor.

In a difficult recapitalization, pay-to-play forces investors to make a choice: back the company or get converted to common alongside founders. It prevents the worst outcome - an early investor who won't support you and won't get out of the way.

Pay-to-play provisions are at a historic high right now, appearing in 10.1% of all venture deals as of mid-2025 (per Cooley), up from a historical norm of 3–5%.

If you see it in a term sheet today, don't reflexively push back - understand what it's doing first.

📄 NVCA Legal Resources - The industry-standard term sheet templates used across many VC financings; free to download and worth reading before any deal.

📄 Cooley Q4 Venture Financing Report - highlights from the most current market data on deal terms, valuations, and standards.

📄 AUTM VC/TTO Life Science Term Sheet Template - A free resource built by a coalition of universities, VC firms, and law firms to provide a common framework for university spinouts.

📄 Y Combinator SAFE Template & Other Documents - The industry template for SAFE and other common agreements.

That’s it, that's the mental map.

Term sheets don't have to feel like a foreign language. My hope is that this framework takes some of the mystery and the anxiety out of the moment when one lands in your inbox

By the way: I'm thinking about bringing in a partner from one of the top biotech law firms for a Q&A on term sheets, where we can get into a lot more detail than a newsletter allows.

Would that be useful to you? Reply 'yes' if so. If enough of you are in, I'll do my best to make it happen.

Bonus: send me your most pressing term sheet question and I'll make sure it gets on the list.

Until next week!

- Vadim

PS: When you’re ready, here’s how I can help: