Guidance

Track 2: Term Sheet Key Points and Guardrails

Published 2 December 2025

PREPARING FOR INVESTMENT 

TERM SHEET KEY POINTS & TERM SHEET GUARDRAILS 

A Share Purchase Agreement (SPA) term sheet outlines the key terms that will govern an investment transaction. A summary of the principal commercial and legal terms along with typical approaches seen in early-stage investments is outlined below. This includes: 

• Board composition & structure   

• Leaver and vesting provisions   

• Investor consents   

• Valuation   

• Structure   

• Option pool   

• Fees   

Each transaction is different. Businesses should seek experienced and specific professional and legal advice tailored to their requirements. 

1. Board composition & structure 

The board composition defines how control and oversight are shared between founders and investors following transaction completion. In your term sheet you should consider the number of directors, who appoints them and how decisions are made. This is to ensure balanced governance, allowing investors oversight while preserving founders’ ability to manage the business day-to-day. 

Typical approaches: 

• Founder-led boards are common at seed stage, with one or more founders retaining control.   

• Investor representation increases as capital invested and risk rise, typically through one investor director. This may include a minimum shareholding required to have an investor board seat.   

• Independent directors may be introduced to bring neutrality and experience.   

The market norm would see a board comprising of founders, investors and an independent director. 

2. Leaver and vesting provisions 

Leaver and vesting provisions protect the company and investors from a founder or key employee leaving prematurely. They define how much equity a departing individual can retain and under what circumstances. This ensures alignment between founder commitment and company performance. 

Typical approaches: 

• The % of founder shares given on day one and the period over which they are vested. The standard is 0% shares given on day one with the rest vesting over a 4-year period.   

• Good leavers (e.g. those leaving due to illness or company sale) usually retain vested shares.   

• Bad leavers (e.g. voluntary resignation or dismissal for cause) are typically required to sell their shares back at nominal value.   

There are many ways that these provisions can be structured, and it’s recommended to seek legal advice however, it is standard is to include at least a definition of good and bad leaver, with good leaver including scenarios such as death, incapacity or serious illness. 

3. Investor Consents 

Investor consents, often referred to as “reserved matters”, specify which company decisions require prior investor approval. These provisions protect investors from material changes that could affect their investment without restricting day-to-day management. 

Typical approaches: 

• Approval is required for issuing new shares or changing share rights.   

• Consent is needed for significant borrowing, asset sales, or amending constitutional documents.   

• Some decisions may require the consent of a “major investor” or a majority of investors.   

The market norm would see a reserved matters list agreed between the founders and majority investors. 

4. Valuation 

Valuation establishes the company’s worth for investment purposes and determines how much equity is exchanged. It provides a transparent basis for negotiation and future growth expectations. 

Typical approaches: 

• Pre-money valuation represents the company’s value before new capital is invested.   

• Post-money valuation includes the capital raised in the current round.   

• Negotiations often reference comparable market transactions or anticipated growth. 

5. Structure 

The structure sets out how the investment is executed, specifying whether investors acquire existing shares, subscribe for new ones, or a combination of both. It clarifies the flow of funds and ownership post-transaction. 

Typical approaches: 

• Investment is made in ordinary or preference shares (participating and non-participating).   

• Preference shares generally rank above ordinary shares because they grant holders priority in receiving dividends and repayment of capital if the company is wound up. Ordinary shares are then paid out proportionately from any remaining value.   

• Non-participating preference gives investors the option to receive their initial investment back (usually 1x) or share in proceeds with other shareholders.   

• Participating preference allows investors to receive their initial amount and a further pro rata share of remaining proceeds.   

Standard seen is a non-participating preference share structure, with a 1.0x liquidation multiple. 

6. Option Pool 

An option pool reserves a portion of the company’s equity for current and future employees. It incentivises key hires and aligns employee interests with company performance. 

Typical approaches: 

• Pools can be created pre-money (diluting existing shareholders) or post-money (diluting both founders and investors).   

• The pool size is usually reviewed at each funding round.   

Typically, a 10% post-money option pool is established. 

7. Fees 

Fee provisions allocate responsibility for the professional and transaction costs incurred as part of the investment. These clauses provide transparency and prevent post-completion disputes. 

Typical approaches: 

• Investors often request that the company covers a capped amount of their legal costs.   

• The company pays its own legal, financial and advisory fees, often funded from the investment proceeds.   

The standard is that each party pays their own costs.

This information is a non-exhaustive summary of some of the factors which may be relevant to seeking investment in the space sector. Persons should take independent legal and professional advice before seeking any such investment.