Guide 02

Before signing a term sheet

Full

The situation

A term sheet, a SAFE, a convertible note, a shareholders’ term sheet, or a debt term sheet is ready for signature. People around you are treating the round as agreed. Some clauses say the investment is not binding. Others, often exclusivity and confidentiality, are.

The decision at stake

Whether to sign this document now: which obligations start today, how the economics and the control would work if the deal closes, what can still change, and what happens to your runway if the investor delays or walks away.

Illustration

The investment is non-binding. The exclusivity is not.

A one-page term sheet says the investor “may” invest USD 2 million and that the sheet is not a commitment. It also says that for 60 days you will not solicit other financing, and that you will keep their notes confidential for two years. You sign because you were told nothing is binding. For those 60 days you turn other investors away. They then reopen valuation. The money was never promised. The silence was. Matthew Bartus, writing for Cooley GO (last reviewed 23 January 2022), treats exclusivity as a common binding piece and says 30 to 45 days is often enough to close a venture round. That is his practitioner view, not a rule of any statute.

Illustration

The same preference, two exits

An investor puts in USD 2 million for 20 percent, with a 1x non-participating preference. At a USD 3 million sale the preference (USD 2 million) is worth more than 20 percent of the exit (USD 600,000), so common holders share what remains only after that preference. At a USD 15 million sale, 20 percent (USD 3 million) is worth more than the preference, so conversion pays the investor more. A participating preference takes the USD 2 million and then 20 percent of what is left. The waterfall on this page lets you move the exit and see the difference. It is an illustration, not your cap table.

Evidence used on this page

Each label is a kind of source, not a grade. Regulatory pages describe what an authority published. They are not a ruling on your facts.

PractitionerLast reviewed 23 January 2022
Negotiating term sheets: focus on what’s important · Cooley GO, Matthew Bartus
A law firm’s overview of valuation and the option pool, liquidation preferences, the board, protective provisions, and exclusivity. It is a US-oriented practitioner note, not a UAE opinion.
CommunityQ1 2025
Startup Struggle Survey 2025 · Slush
Survey of 607 early-stage European founders in Q1 2025. Fundraising was a top concern for 58.1 percent, revenue growth for 52.8 percent (from 36.8 percent), and customer acquisition for about 50 percent. The same page says 18 percent thought it would be easy to raise if they wanted to, and 57 percent disagreed.
RegulatoryChecked 14 October 2026
Registrar of Companies · Dubai International Financial Centre
The DIFC registrar describes its role in incorporation and registration of DIFC entities. A certificate shows an entity was registered. It does not show that a named person may bind it today.
RegulatoryChecked 14 October 2026
DIFC Courts · DIFC Courts
The courts of the DIFC. Whether they can hear your dispute depends on the parties and the clause. Ask counsel before you treat a forum clause as settled.
RegulatoryChecked 14 October 2026
Dubai Financial Services Authority · DFSA
Independent regulator of financial services in or from the DIFC. Use the site itself for alerts, the public register, and the complaints route.
RegulatoryChecked 14 October 2026
Public register of firms · Dubai Financial Services Authority
The DFSA’s own register of firms it authorises. Open it from dfsa.ae. A listing, or the absence of one, still does not prove who sent you an email.
RegulatoryChecked 14 October 2026
Abu Dhabi Global Market · ADGM
The official ADGM site, including the financial centre’s own materials on registration and regulation.
RegulatoryChecked 14 October 2026
Financial Services Regulatory Authority · ADGM
The FSRA regulates financial services in ADGM. Ask whether the activity you are being offered is inside that perimeter.
RegulatoryChecked 14 October 2026
FSRA public register · ADGM
The FSRA describes this register as its official public record of firms, individuals, and other bodies it has approved. The same page says it cannot guarantee accuracy and does not accept liability for errors or missing information.
RegulatoryChecked 14 October 2026
ADGM Courts · ADGM
ADGM’s courts. A clause that names them still needs a lawyer’s view of whether it fits the dispute you might actually have.
RegulatoryIn force 1 January 2026
Federal decree-laws on the Capital Market Authority and capital markets · UAE Capital Market Authority
The Authority’s own page on Federal Decree-Laws No. 32 and No. 33 of 2025, in force from 1 January 2026, including the renaming of the Securities and Commodities Authority as the Capital Market Authority.
RegulatoryChecked 14 October 2026
Capital Market Authority · UAE Capital Market Authority
The current federal capital-markets authority site. Confirm with counsel whether an onshore offer, promotion, or platform sits inside its perimeter.
PractitionerChecked 14 October 2026
Handshake Deal Protocol · Y Combinator
A handshake is a verbal commitment. The transaction is when documents are signed and money changes hands. An investor can say no in a way that sounds like yes, and can take a free option.
Practitioner2 October 2025
2025 updates to the model legal documents · National Venture Capital Association
A release note, checked 14 October 2026. NVCA said it had updated five model documents, and that the updated documents now include mechanics for tranched financings. The note was read. The model clauses were not. It is not evidence that tranches are new, or that they are unfair. The documents are US venture forms, not UAE law.
PractitionerChecked 14 October 2026
Model legal documents · National Venture Capital Association
The catalogue page says each document is a starting point only, should be tailored, and should not be construed as legal advice for any particular facts. The landing page and that disclaimer were read. The model clauses were not audited.
CommunityChecked 14 October 2026
Signed term sheet then VC is ghosting us · Reddit, r/startups, u/morepow
One founder’s account: a term sheet signed in early July, a funding date that slipped from mid August, and eight business days without an email reply. The post was archived. A direct request was blocked; a second fetch returned the thread. It is not a base rate.
RegulatoryChecked 14 October 2026
Commissioner of Data Protection: FAQs and glossary · DIFC
On personal data breaches, the FAQ points to Articles 41 and 42 of DIFC Data Protection Law 2020. Notify the Commissioner as soon as practicable in the circumstances if the breach compromises confidentiality, security, or privacy. Communicate to the individual as soon as practicable if the risk is high, and promptly if there is an immediate risk of damage. This is not a blanket 72-hour rule. The FAQ says it is not legal advice and the Commissioner does not warrant accuracy for a particular firm. A direct request was rate-limited; a second fetch returned the FAQ text.
RegulatoryChecked 14 October 2026
Data breach notifications · ADGM Office of Data Protection
Under Article 32 of the ADGM Data Protection Regulations 2021, a Data Controller must notify the Office of Data Protection without undue delay and, where feasible, not later than 72 hours after becoming aware. The page describes a Data Controller as an ADGM registered entity that determines the purposes and means of processing. It does not set a 72-hour clock for every UAE startup.
RegulatoryChecked 14 October 2026
AML, CTF and sanctions compliance: summary · Dubai Financial Services Authority
The supervisory regime applies to Authorised Firms other than a Credit Rating Agency, Authorised Market Institutions, DNFBPs, and Registered Auditors, collectively Relevant Persons. Raising equity does not by itself make a startup a Relevant Person.
RegulatoryUpdated 11 August 2026
UAE law on bankruptcy · UAE government portal, u.ae
The portal describes Federal Decree-Law No. 51 of 2023. Article 3, as returned by a second fetch of the legislation portal after a direct request was blocked, applies to companies subject to the Commercial Companies Law, a natural person with the capacity of a trader, and a licensed civil company of a professional nature. It does not apply to government companies whose own documents set special rules, free-zone companies that follow special rules, Central Bank licensed banks, financial institutions and insurers under separate laws, or personal, family, and consumption debts including a home. The same u.ae page also says the law does not apply to natural individuals, which is broader than the trader limb. Follow Article 3 and ask counsel. This site does not recommend a jurisdiction.

The document in front of you

Write down which paper you are about to sign. In the Slush survey of 607 early-stage European founders in early 2025, only 18 percent said it would be easy to raise if they wanted to. Scarcity makes a signature feel like relief. The signature is the decision.

1.Your name
2.Company name
3.Investor or lender
4.Date
5.What is the document called, and what is its date or version?
6.Have you already signed, taken money, or started exclusivity?
If yes, use the last section. Do not assume a “non-binding” banner undoes a clause you have already accepted.
YesNot yetNoUnsure

What is binding now

Read the document for the sentences that bind even when the investment itself does not. Exclusivity, confidentiality, expenses, a break fee, and governing law are the usual candidates. A confidentiality clause can also limit what you tell the next investor, your team, or a spouse who needs to understand the risk.

1.Which clauses does the document say are binding, and which does it say are not?
2.If there is exclusivity, how many days, what does it forbid, and can you still talk to investors already in process?
3.Who pays legal and diligence costs if the round does not close?
YesNot yetNoUnsure
4.What are you no longer free to say or do the moment you sign?

Ownership: valuation, pool, and conversion

Price is not the percentage you will own. Bartus’s Cooley note, last reviewed 23 January 2022, asks founders to understand an option pool that sits inside the fully diluted pre-money, because that pool is paid for by the existing holders, and to judge valuation together with who the investor is. Outstanding SAFEs and convertibles may convert in the same round. How they stack depends on the documents, not on a general rule. The tool below is a simplified post-money SAFE illustration. It is not a cap table, it ignores interest and most side letters, and your documents will differ. Replace the sample numbers.

Illustration

Dilution

A simplified post-money SAFE model. Each SAFE owns amount divided by its cap before the round, or more if the discount is richer. Those slices dilute the founders, not each other. The new investor then buys investment divided by pre-money plus investment. The option pool is a percentage of the post-money company, taken from the existing holders. No interest, no side letters, no existing pool. Not a cap table.

Pre-money valuation (USD)

New investment (USD)

Option pool, percent

SAFE 1

Name

Amount

Valuation cap

Discount percent

Ownership illustration
Founders before this round	90.0%
Founders after round and pool	63.0%
New investor	20.0%
Option pool	10.0%
Seed SAFE after the round10.0% before, using the cap	7.0%

Founders: 63.0%
SAFEs: 7.0%
Pool: 10.0%
New investor: 20.0%

1.What pre-money or valuation cap, round size, and option pool are written down?
2.List every SAFE, note, or promise already outstanding: amount, cap, discount, and whether it is pre-money or post-money.
3.Have you run the illustration, or your lawyer’s model, with the pool and the outstanding SAFEs together?
YesNot yetNoUnsure
4.What founder ownership do you believe you would have after this round, and what would change that number?

Liquidation preference

A preference decides who is paid first when the company is sold, and sometimes when it is wound up. Bartus treats it as a business term founders skip at their cost, and he notes that a Series A preference often becomes the pattern for later rounds. Model more than one exit. A 1x non-participating preference and a participating preference are different deals at a modest sale, and similar deals at a very large one. The waterfall is an illustration: one investor, no dividends, no seniority stack, no option exercise.

Illustration

Liquidation waterfall

One investor. The preference is the investment times the multiple. Non-participating preferred takes the better of that preference or their ownership share of the exit. Participating preferred takes the preference and then their ownership share of what remains. A cap, if you set one, limits participation and is then compared with converting. No dividends, no stacked rounds, no option exercise.

Investment covered by the preference

Investor ownership, percent

Preference multiple

Exit you want to inspect

Participation cap, multiple (blank if none)

Participating preferred

Preference is worth more than converting, so the illustration pays the preference first, capped at the exit.

Proceeds at selected exit values
Exit	Investor	Common	Share of exit
USD 1,000,000	USD 1,000,000	USD 0	100.0%
USD 2,000,000	USD 2,000,000	USD 0	100.0%
USD 4,000,000	USD 2,000,000	USD 2,000,000	50.0%
USD 6,000,000	USD 2,000,000	USD 4,000,000	33.3%
USD 10,000,000	USD 2,000,000	USD 8,000,000	20.0%
USD 20,000,000	USD 4,000,000	USD 16,000,000	20.0%

1.What multiple is written, and is it participating, non-participating, or capped?
2.Have you looked at proceeds at a low exit and at the exit you actually talk about?
YesNot yetNoUnsure
3.If the next round copies this preference, what happens to you?

Board, voting, and consent

Control moves in sentences that do not use the word control. A three-person board with one investor is a different company from a board the investor can deadlock. Protective provisions, sometimes called vetoes or consent rights, can require approval before a new class of shares, a sale, a hire above a salary, a debt, or even an amendment to the constitution. Bartus notes that a financing veto is often drafted as a ban on a new series of stock, or on amending the constitutional document, rather than as “no financings without us”. Read for that shape. Rights can accumulate across rounds: a consent or a preference from an earlier round may still bind after this one.

1.Who sits on the board the day after closing, and who appoints each seat?
2.List the actions that need investor consent. Mark any that let them block a future raise, a sale, or the budget.
3.Can you still hire, sign a customer, and spend within a budget without a consent?
YesNot yetNoUnsure
4.What information must you send, how often, and to whom may they pass it?
5.Does the document restart founder vesting, or change what happens if you leave?
If vesting is in the sheet, note the start date, and whether any acceleration is single or double trigger. This guide does not advise which to accept.
YesNot yetNoUnsure

Ownership and control map

Shares, a board vote, the power to appoint or remove a director, a class vote, an individual consent, management authority, a bank signatory, and an admin login can sit in different documents. For each decision the worksheet asks who decides, who can block, which document, and when that answer changes. Rights can accumulate across rounds. An earlier consent can still bind after a later financing. The worksheet does not interpret your constitution.

One decision at a time. Rights can accumulate across rounds, so write when the answer changes, not only who holds it today.

Issuing or transferring shares

Who decides

Who can block

Which document

When this changes

Board votes

Who decides

Who can block

Which document

When this changes

Appointing a director

Who decides

Who can block

Which document

When this changes

Removing a director

Who decides

Who can block

Which document

When this changes

Class votes

Who decides

Who can block

Which document

When this changes

Individual investor consents

Who decides

Who can block

Which document

When this changes

Management authority to bind the company

Who decides

Who can block

Which document

When this changes

Bank signatories

Who decides

Who can block

Which document

When this changes

Admin access to systems

Who decides

Who can block

Which document

When this changes

1.Which rights from earlier rounds still bind, and does this document replace them or add to them?

What can change before the long documents

A term sheet is often a sketch of documents you have not seen. Definitions, disclosure schedules, and the investor’s form of constitution arrive later. Ask what is allowed to move, and what would let you walk away without breaching exclusivity.

1.Which economic or control terms are still “to be agreed” or “customary”?
2.Have you seen the form of the definitive documents, or only the sheet?
YesNot yetNoUnsure
3.What change would make you refuse to sign the long documents, and is that written anywhere?

Conditions, milestones, and tranches

Money that depends on a milestone, a lead, or a tranche is conditional financing. It can be a perfectly ordinary deal and still be unsafe to spend. Write what must be true before each transfer, who decides that it is true, and what you will not hire or promise until then. On 2 October 2025 the National Venture Capital Association said its updated US model documents now include mechanics for tranched financings. That is a release note. The clauses were not audited here, and it is not a finding that tranches are new or unfair. The catalogue says each model is a starting point and should be tailored.

1.What are the conditions to closing, in the order they must happen?
2.If the money arrives in tranches, what triggers each one, and what happens if a trigger is missed?
3.Have you separated cash you can spend from cash that is only described in this document?
YesNot yetNoUnsure
4.Who decides whether a condition is satisfied, and what if you disagree?

Funding status and the close

Interest or an indicative allocation, a term sheet, definitive agreements, funds received, and funds you may spend are different stages. Y Combinator’s Handshake Deal Protocol says a handshake is a verbal commitment, and the transaction is when documents are signed and money changes hands. It also says an investor can say no in a way that sounds like yes, and can take a free option. The page was checked on 14 October 2026. A Reddit thread by u/morepow is one founder’s account of a term sheet signed in early July, a funding date that slipped from mid August, and eight business days without an email reply. A direct request for that page was blocked; a second fetch returned the post. It is labelled Community, and it is not a base rate. For each stage, record the commitment, the evidence, the conditions, the person responsible, the deadline, the dependencies, including investors waiting on each other, and the cash plan if the stage never completes.

Fill only the stages you can evidence. A later stage does not make an earlier condition go away.

Interest or indicative allocation

What precisely has been offered, by whom, and with which conditions?

The commitment, in their words and yours

Evidence you hold

Conditions still open

Person responsible

Deadline

Dependencies, including investors waiting on each other

Fallback cash if this stage never completes

Term sheet

Which provisions bind, and which investment terms remain conditional?

The commitment, in their words and yours

Evidence you hold

Conditions still open

Person responsible

Deadline

Dependencies, including investors waiting on each other

Fallback cash if this stage never completes

Definitive agreements

What has actually been signed and approved, and which closing conditions survive?

The commitment, in their words and yours

Evidence you hold

Conditions still open

Person responsible

Deadline

Dependencies, including investors waiting on each other

Fallback cash if this stage never completes

Funds received

Has the payment cleared in the correct company account?

The commitment, in their words and yours

Evidence you hold

Conditions still open

Person responsible

Deadline

Dependencies, including investors waiting on each other

Fallback cash if this stage never completes

Funds usable

Are there restrictions, reserves, refunds, or linked obligations that affect spending?

The commitment, in their words and yours

Evidence you hold

Conditions still open

Person responsible

Deadline

Dependencies, including investors waiting on each other

Fallback cash if this stage never completes

1.Which stage is the furthest you can evidence today?
Later stages do not erase earlier conditions.
Interest or indicative allocationTerm sheetDefinitive agreementsFunds receivedFunds usableUnsure

If they delay or withdraw

Exclusivity without a funded close is a runway decision. Ask what you will do in week six if the documents slip, and which costs you can still avoid. A contingency is a date and a number, not a hope that they “seem committed”.

1.On what date does exclusivity end, and what is your cash date if this round does not close?
2.What will you stop, pause, or restart if the investor goes quiet for two weeks?
3.Can you return to other investors without breaching what you signed?
YesNot yetNoUnsure
4.How many weeks of operating cash remain if this investment is zero?

If any of it is debt

A venture debt, a convertible with a maturity, or a shareholder loan adds security, covenants, defaults, and sometimes a personal guarantee. A missed ratio, a new debt, or a late account can let the lender accelerate, which is a practical form of control even without a board seat. A personal guarantee puts the household on the document. A kind interest rate does not answer the guarantee.

1.Is any instrument debt, or able to become debt on a date?
The title does not answer it. Read the maturity, repayment, and conversion clauses.
YesNot yetNoUnsure
2.What is pledged: shares, accounts, intellectual property, personal assets?
3.Which covenants would you have to meet, and what is a default?
4.Is anyone asked for a personal guarantee or a family asset?
YesNot yetNoUnsure
5.If you miss a payment or a covenant, what can the lender do, and how fast?

Which kind of problem is this

Separate four situations. Fraud or misrepresentation: the counterparty or the funds may not be real (use the investor guide as well). Unsuitable terms: the person is real, and the economics or the control are wrong for you. Conditional financing: the process is real, and the money is not yet yours to spend. Ordinary negotiation: the terms are in a range you can discuss, and you still need to understand them. Signing does not require you to pretend the first three are the fourth.

1.Which description fits today?
Possible fraud or misrepresentationReal party, unsuitable termsConditional financingOrdinary negotiationMore than one of these
2.What clause or fact puts it there?
3.Has a lawyer who acts for the company, not for the investor, read the binding clauses?
YesNot yetNoUnsure

UAE and GCC: questions for an advisor

Do not assume a US venture habit decides DIFC, ADGM, or mainland UAE law, and do not use this page to choose a jurisdiction. The inserts state the entity, the activity, the source date, and the fact that would change the answer. DIFC breach notice, where that law applies, is as soon as practicable, not a blanket 72 hours. An ADGM Data Controller notifies without undue delay and, where feasible, within 72 hours. The DFSA AML module applies to defined Relevant Persons. UAE federal bankruptcy has exclusions. The Capital Market Authority’s own page says Federal Decree-Laws No. 32 and No. 33 of 2025, in force from 1 January 2026, renamed the Securities and Commodities Authority. If someone or some data sits outside the UAE, ask which country applies.

Jurisdiction inserts

Each insert names an entity, an activity, a source date, and the facts that change the answer. None of them recommends a jurisdiction, a court, or a filing.

DIFC Commissioner of Data Protection

A personal data breach under Articles 41 and 42 of DIFC Data Protection Law 2020, where the breach compromises confidentiality, security, or privacy.

Notify the Commissioner as soon as practicable in the circumstances. Communicate to the individual as soon as practicable if the risk is high, and promptly if there is an immediate risk of damage. The FAQ says it is not legal advice and does not warrant accuracy for a particular firm.

What would change the answer. Whether DIFC data protection law applies to this entity and this processing, and whether the breach compromises confidentiality, security, or privacy. This is not a blanket 72-hour rule.

Regulatory Commissioner of Data Protection: FAQs and glossary FAQ checked 14 October 2026. A direct request was rate-limited. A second fetch returned the FAQ text.

ADGM Office of Data Protection

A personal data breach by a Data Controller under Article 32 of the ADGM Data Protection Regulations 2021. The page describes a Data Controller as an ADGM registered entity that determines the purposes and means of processing.

Notify without undue delay and, where feasible, not later than 72 hours after becoming aware.

What would change the answer. Whether the entity is an ADGM Data Controller, and whether notice within 72 hours is feasible. The 72 hours are not a clock for every UAE startup.

Regulatory Data breach notifications Page checked 14 October 2026.

Dubai Financial Services Authority

Anti-money laundering, counter-terrorist financing, and sanctions compliance.

The supervisory regime applies to Authorised Firms other than a Credit Rating Agency, Authorised Market Institutions, DNFBPs, and Registered Auditors. The page calls these Relevant Persons.

What would change the answer. Whether this entity is a Relevant Person. Raising equity does not by itself put a startup inside the AML module.

Regulatory AML, CTF and sanctions compliance: summary Summary page checked 14 October 2026.

UAE federal bankruptcy, Federal Decree-Law No. 51 of 2023, Article 3

A possible inability to pay debts, and whether a federal process is even in scope.

Article 3 applies to companies subject to the Commercial Companies Law, a natural person with the capacity of a trader, and a licensed civil company of a professional nature. It does not apply to government companies whose own laws or documents set special settlement or bankruptcy rules, free-zone companies and businesses that follow their own special rules, banks, financial institutions and insurance companies licensed by the Central Bank and governed by separate laws, or personal, family, and consumption debts, including a home for personal or family residence. The u.ae page also says the law does not apply to natural individuals. That sentence is broader than the trader limb in Article 3. Ask counsel which sentence governs, and follow Article 3.

What would change the answer. The legal form, whether a free zone has its own rules, whether a person has the capacity of a trader, and whether the debt is personal, family, or consumption. Nothing here recommends a jurisdiction or a process.

Regulatory UAE law on bankruptcy u.ae page updated 11 August 2026 and checked 14 October 2026. The legislation portal blocked a direct request. A second fetch returned Article 3.

1.Which entity would issue the shares or sign the debt, and where is it incorporated?
2.Have you asked whether this raise, or the investor’s activity, needs a permission from the DFSA, the FSRA, or the Capital Market Authority?
YesNot yetNoUnsure
3.What dispute forum does the document name?
4.Is your lawyer admitted to advise on that forum and that kind of entity?
YesNot yetNoUnsure
5.Write the single question you will send your lawyer before you sign the binding clauses.

Already acted?

If you have signed, the summary should say what has already started, especially exclusivity and any fee. You may still be able to shape the definitive documents. You may not. That is a question for your lawyer, asked with the signed copy in front of them, before you tell the other investors the round is done.

I have already signed, paid or lost access

1.What did you sign, on what date, and which clauses does it say are binding?
2.Are you inside an exclusivity or no-shop period right now?
YesNot yetNoUnsure
3.What have you spent, hired, or told customers on the assumption that the money arrives?
4.Who is your lawyer on the definitive documents, and when is the next date they need a decision?
5.If the investor delays, what will you do on a named date, and who else needs to know?

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