Term Sheets in 2026: 5 Lines to Check Before You Sign
Getting a term sheet is an achievement. After months of meetings, someone has put in writing that they want to invest in your company. Most of the attention goes to the valuation, and that makes sense: it is the number everyone asks about. But a few less discussed lines decide how much you receive on the day the company is sold.
The good news comes from the data. Most of those lines follow a standard that is quite favorable to founders. In Cooley's Q2 2026 report, which covers 166 rounds handled by the firm, 95.8% had a 1x liquidation preference and 96.4% used nonparticipating preferred stock.
Knowing the standard changes the conversation. You stop arguing in the dark and start asking why a line in your document differs from what the market usually does. This article shows what the numbers say, runs the math on one clause and ends with a 5-line checklist to take into your next conversation.
What a term sheet is and why it deserves calm
A term sheet is the summary of the investment conditions. It generally does not oblige the parties to close the round, but it usually sets the basis for the definitive agreements. Once it is signed, reopening a point gets harder, because the fund has already started diligence and the relationship has built expectations.
That makes the best moment for questions the one before you sign. It is not distrust. Professional investors expect founders to understand the document, and a good question tends to show preparation.
One caution before moving on. The data reflects rounds handled by Cooley, an American law firm, and is not a sample of Brazil. Here, the structure depends on the corporate type and on the instrument used in the round: many early deals use convertible notes or other contracts, and the wording changes. The economic reasoning is the same, but the final language should be validated with your lawyer.
What the numbers say about the market standard
The mental table is simple: two conditions show up in nearly every round, and three show up in few.
1x preference: 95.8% of rounds.
Nonparticipating preferred: 96.4%.
Pay-to-play: 8.4%.
Redemption: 5.4%.
Accruing dividends: 3%.
Recapitalization: 1.81%.
The timing helps too. Up rounds made up 83.6% of deals in Q2 2026, against 73.5% a year earlier, according to Cooley's Q3 2025 and Q2 2026 reports. There was a small pullback from 86.6% in the previous quarter, but the level remains above last year's. Down rounds stood at 12.1%.
That does not mean rare clauses are illegitimate. For companies with a hard history, higher risk or a rescue round, they can be the price of moving forward. The point is to know you are paying that price and to get something in return.
The 5 lines, one by one
1. Liquidation preference
The preference defines who gets paid first when the company is sold. With 1x, the investor can recover the amount invested before anything is split with the other shareholders. It is a reasonable protection, which is why nearly everyone uses it. A multiple above 1x deserves a conversation, because it increases what comes off the top in an average sale.
The question to ask: "Why this multiple, if 95.8% of rounds in Cooley's sample closed at 1x?"
2. Participation
This is the line that changes the math the most in a sale. With nonparticipating stock, the investor chooses between taking the preference and converting into equity. With participating stock, the investor takes the preference and still shares in the rest.
Illustrative example. A fund invests R$ 10 million for 25% of the company, and the company is sold for R$ 60 million.
Without participation, the fund prefers to convert: 25% of R$ 60 million is R$ 15 million. The other shareholders keep R$ 45 million.
With participation, the fund takes R$ 10 million plus 25% of the remaining R$ 50 million, or R$ 22.5 million in total. The other shareholders keep R$ 37.5 million.
The difference is R$ 7.5 million for founders and other shareholders, in a line that often gets a quick read. The amounts are hypothetical and only show the mechanism. Redo the math with your own numbers and with two or three sale scenarios.
3. Accruing dividends
Here the amount owed to the investor grows over time, even with no cash paid out. It appeared in 3% of Q2 2026 rounds. The effect tends to stay hidden until the sale, when the accrued balance is added to the preference. If this clause is in your document, ask for the rate, the calculation base and the moment the amount becomes due.
4. Redemption
A redemption right lets the investor ask the company, after a certain period, to buy back the stake. It appeared in 5.4% of rounds. In practice, it can put pressure on cash at a delicate moment. Ask when the right begins, who pays and what happens if the company lacks the cash to comply.
5. Pay-to-play
Pay-to-play requires investors to follow on in future rounds to keep certain rights. It appeared in 8.4% of rounds. The rate has moved a lot in recent quarters: 9.9% in Q3 2025, 6.3% in Q4, 7% in Q1 2026 and 8.4% in Q2, in the figures Cooley published in each report. For a founder it can even be positive, since it encourages those at the table to stay along. What matters is understanding how it affects current shareholders' rights and the next round.
How to turn this into a conversation
A good way to use this data is to follow three steps.
Put the document side by side with the checklist. Mark the lines that match the standard. In most cases the list ends up nearly complete, and that alone is good news to share with your cofounder.
Run the math on each deviation. Build three sale scenarios and calculate what each shareholder receives. A deviation that seems technical gets clear once it turns into money.
Ask for the reason and propose the market version. A serious fund will explain why a clause is there. Sometimes there is a good reason, and you decide whether price and the other terms make up for it. Sometimes the clause came from an old template and leaves with no argument.
Remember that the quality of the relationship with the investor weighs as much as the document. You will live with this fund for years. A well-run conversation about the term sheet is the first test of how you will decide things together.
What this checklist does not cover
Five lines do not exhaust a term sheet. They were chosen because Cooley publishes the frequency of each one, so you can compare your document against a number rather than an opinion. Other lines deserve the same attention, such as anti-dilution protection, board composition, veto rights and the size of the option pool. For those, the path is similar: understand the economic effect, simulate scenarios and ask the reason behind each choice.
It also helps to read the document as a whole. A higher valuation with a worse preference can pay less than a lower valuation with clean terms, depending on the sale price. So compare offers in money, across the same scenarios, and not just by the headline number. The best term sheet is often not the one with the highest valuation, but the one that leaves more value with the people building the company.
The checklist to save
Preference: 1x.
Participation: no.
Dividends: non-accruing.
Redemption: none.
Pay-to-play: none, or understood and accepted.
If every line looks like this, your document sits within what Cooley's sample shows as common. If one differs, you now know which question to ask.
Informational content only; not an investment recommendation.
Leia este artigo em português: https://blog.kurumiventures.com/post/term-sheet-5-linhas-conferir
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