Part 4 The Fine Print: What Else Is Buried in the Document?
The small clauses have big consequences, and why might the last few pages of your term sheet be the most important ones?
You’ve made it through the front-loaded headlines of the term sheet — the valuation looks solid, you’ve agreed on board structure, and the liquidation preferences are fair.
But don’t exhale just yet.
Because lurking in the final third of that document — the part most founders skim — are the quiet clauses that could cost you money, freedom, leverage, or all three.
This is the fine print. And while it rarely makes headlines, it can make or break your ability to lead and scale your company.
The Legal Fee Landmine
It’s just a sentence or two. You almost miss it.
“The Company shall pay Investor’s reasonable legal costs in connection with the transaction.”
Totally standard. Totally harmless. Right?
Not always.
Some investors bill generously — and with no cap in place, your company could be hit with $25K+ in legal fees even if the deal falls apart. Worse still, you’re on the hook even if they walk away.
Founder tip: Always ask for a clear cap on investor legal fees. $10K$— 25K is reasonable for most early-stage deals. Make sure payment is conditional on closing.
Information Rights: How Much Access Is Too Much?
Investors will ask for regular updates — and they should. However, “information rights” can become oversight overreach if not carefully scoped.
Reasonable requests:
Quarterly financial summaries
Annual board-approved budgets
Updates aligned with board meetings
Overreach?
Monthly reporting
Ad hoc data pulls
Mandated investor meetings outside of board sessions
Founder tip: Set clear boundaries. Offer a quarterly dashboard, use investor updates as a tool for alignment (not micro-accountability), and avoid real-time reporting loops.
Exclusivity: The No-Shop Trap
When you sign a term sheet, the investor often includes an exclusivity clause that prevents you from talking to other potential investors while they complete diligence.
Fair enough. But some stretch this to 60–90 days — and that’s dangerous.
Every day you’re locked into exclusivity without a deal, you lose leverage — and possibly runway.
Founder tip: Negotiate a 30–45 day exclusivity period with a “good faith effort” clause and a break option if they’re dragging their feet. Your clock is ticking — don’t let them stall it.
Founder Warranties & Personal Guarantees
This is the clause you probably skip — and it’s the one that can personally wreck you.
Some term sheets require founders to warrant that all information given to investors is accurate — and hold you personally liable if it’s not.
Even honest mistakes (like missing a minor IP conflict or a contractual quirk) could trigger consequences.
Founder tip: Push for company-level warranties only. If personal warranties are required, negotiate:
A liability cap
A clear time limit
A materiality threshold
Don’t risk your personal assets to close a funding round.
ESG, DEI & Values Clauses: Good Intentions, Vague Execution
In 2024 and beyond, more investors are inserting clauses tied to environmental, social, and governance goals — diversity, equity, and inclusion commitments.
These values matter. However, when written poorly, they become vague mandates without measurement, distracting small teams from real progress.
Founder tip: Align with the spirit, but ask:
What are the expectations?
Who defines success?
Are these obligations or aspirations?
Work with investors to make this meaningful — not performative.
Side Letters: The Quiet Power Moves
Sometimes, the real deal isn’t in the term sheet — it’s in the side letter.
This could include:
Better pro-rata rights
Enhanced information access
Special liquidity preferences
Observer seats or follow-on participation terms
And they’re often signed without you ever seeing them — unless you ask.
Founder tip: Always ask: “Are there any side letters associated with this round?”
Request copies. Get your lawyer to review them. The side letter can tell you more about your investor than their pitch deck ever will.
Final Thought: The Fine Print Isn’t Fine — It’s Foundational
You will never be more optimistic about a deal than when you sign the term sheet. That’s precisely why you need to read it like a cynic.
A misplaced clause won’t just slow you down — it could cost you equity, optionality, or the freedom to run your company your way.
So before you pop the champagne, sit with your lawyer. Ask dumb questions. Sleep on it.
Your future self will thank you.
Up next:
Part 5 — How to Negotiate Like a Founder (Not a Follower)
Tactics, phrases, and mindset shifts to help you get a better deal — without blowing it up.