A term sheet is a document that outlines the key terms of a proposed investment from a venture capital firm into a startup that is raising capital. It serves as a starting point for negotiating the details of the investment before drafting binding legal agreements. It sets the stage for negotiations between startups and investors, defining expectations around valuation, ownership, investor protections, and governance. Breaking Down a Term Sheet A term sheet serves as a framework for investment negotiations, outlining financial and operational terms that can shape the company’s growth, decision-making structure, and potential outcomes in future funding rounds or exits. To evaluate a term sheet effectively, VCs should be mindful of several critical areas: Valuation & Ownership: How much is the company worth, and what percentage will the investor own? Investor Protections: What rights does the investor have in decision-making, liquidation, or future fundraising rounds? Governance & Control: How will board seats be allocated, and who has voting power over key company decisions? Exit & Liquidity Terms: What happens in the event of an acquisition, IPO, or another exit scenario? Are Term Sheets Legally Binding? Most aspects of a term sheet are non-binding, meaning either party can walk away before finalizing legal agreements. However, certain provisions, such as confidentiality clauses (which prevent founders and prospective investors from sharing deal details) and exclusivity clauses (which restrict founders from negotiating with other investors for a set period), may be legally enforceable. Common Terms Found in a VC Term Sheet 1. Investment Terms The specific terms included in a term sheet will depend on the type of security being acquired. This section outlines how much capital the investor is committing and at what valuation. Pre-money valuation (the company’s estimated worth before investment) helps determine the investor’s percentage of ownership. Post-money valuation (pre-money valuation plus the new investment) can also be a useful benchmark, especially when calculating ownership percentages and share prices in follow-on rounds. If the investment is structured as a convertible note or a SAFE (Simple Agreement for Future Equity), the term sheet will include terms related to conversion mechanics, valuation caps, discount rates, and repayment terms. 2. Liquidation Preference This concept generally applies to preferred stockholders. Investors holding preferred shares typically receive their investment back before common shareholders in a liquidity event (e.g., an acquisition). A 1x liquidation preference means investors recover their initial investment before profits are distributed. Some investors may seek 2x or higher, meaning they receive twice their investment before common shareholders see returns. 3. Equity Conversion Preferred shares generally convert into common stock, often at a 1:1 ratio. This conversion may be influenced by anti-dilution protections (see below). 4. Anti-Dilution Protections If the company raises future rounds at a lower valuation, these provisions ensure the investor’s ownership percentage doesn’t shrink unfairly. Weighted average adjustments are common, while “full ratchet” clauses offer stronger investor protection but can be unfavorable for founders. 5. Investor Participation in Future Rounds (Pay-to-Play) Some term sheets require investors to participate in subsequent funding rounds to retain their preferred stock. Failing to do so may result in their shares converting to common stock. 6. Board Structure Term sheets dictate how board seats are divided among founders, investors, and independent members. A 2-1 setup (two founder seats, one investor seat) favors founders, while a 2-2-1 structure (two founders, two investors, one independent) creates more balanced control.  7. Voting Rights In addition to board composition, voting rights are often negotiated to give investors a say in major decisions. These rights typically correspond to the investor's ownership percentage and may include veto power over specific corporate actions, such as issuing new shares, amending the charter, approving a sale of the company, or taking on significant debt. Founders should carefully assess these provisions to ensure they don’t overly restrict future operations. VCs may also negotiate for other rights in the term sheet, including information rights, pro rata rights, right of first refusal (ROFR), most favored nation (MFN), and more. 8. Dividend Policies Dividends are typically not a major focus in venture deals, but some term sheets include cumulative dividends (which accrue over time) or non-cumulative dividends (which do not accumulate if unpaid). 9. Drag-Along Rights This clause allows investors to force all shareholders to sell the company if certain conditions are met, ensuring that a small group of dissenting shareholders can’t block an acquisition. 10. Use of Proceeds Term sheets may also include a "Use of Proceeds" section that outlines how the company plans to allocate the invested capital. This can include categories such as hiring, product development, sales and marketing, or operational expenses. While often high-level, this section gives investors insight into how the capital will support the company’s growth strategy. Are There Standard VC Term Sheets? Venture capital term sheets have become more concise and easier to understand, with a growing emphasis on transparency and clear definitions. While investors routinely work with these documents, first-time founders may find them complex, making it essential to grasp the key terms for effective negotiation. Some term sheets are as short as a single page, while others can span multiple pages, depending on the deal’s complexity. Y Combinator, a well-known startup accelerator, has published a recommended term sheet template that reflects common industry standards: https://www.ycombinator.com/series_a_term_sheet/ What Does Sydecar Look For in a Term Sheet?  When clients share a term sheet or draft investment agreement with Sydecar, we review it for specific operational alignment, not for legal or strategic advice. Our review focuses on two core areas: Platform Compatibility: We confirm that the proposed investment is something Sydecar can support. This includes checking the type of security, jurisdiction, and the target company's business activities. We may flag issues like prohibited industries or unsupported entity types (e.g., foreign partnerships that raise tax concerns). Product Consistency: We use the term sheet or draft investment agreement to verify that the deal details input into the Sydecar platform match the source documentation. This includes confirming the target company’s legal name, security type, valuation or maturity terms, and other critical fields. Since the information entered in the platform is shared with investors and may appear in the final SPV documents, it’s important that it aligns with the deal terms. Please note: Our review is not comprehensive or advisory in nature. Clients are responsible for ensuring legal accuracy and deal integrity.

Sydecar leverages the Series LLC structure as it offers flexibility and potential tax benefits for VC investments in privately held companies. Each series in a Series LLC is treated as a separate entity for tax purposes and all series have their assets and liabilities separate from other series and the Parent LLC. This separation of assets and liability for Series LLC is pursuant to Delaware Law. The Series LLC structure allows for pass-through taxation. This means the income, deductions, credits, and other tax attributes of each series pass through to the investors, who report these amounts on their personal tax returns.

A management company is an entity—typically an LLC—is a company that is created for the purpose of managing the operations of a venture capital fund. This includes collecting management fees, paying out and accounting for operational expenses (i.e: marketing or business travel), organizing employment or other business agreements, and handling regulatory filings. To learn more about management companies, visit our Guide.

What is an Exempt Reporting Adviser (ERA)? Advisers that are exempt from registration with the SEC are known as "Exempt Reporting Advisers" (ERA). Advisers can claim ERA status with the SEC in two ways: either by using the Private Fund Adviser Exemption (if they are managing less than $150M in assets) or the Venture Capital Fund Adviser Exemption (for advising a qualifying venture capital strategy fund). You can learn more about this requirement in the SEC’s "VC Exemption," Rule 203(l)-1 of the Advisers Act. A Form ADV is a regulatory disclosure form required for investment advisers who must register with the U.S. Securities and Exchange Commission (SEC) or who are claiming an exemption from registration with the SEC. Compliance with State Laws While federal laws don’t necessarily require ERA’s to file a Form ADV, advisers must also comply with their respective state laws. Generally, all states recognize the same exemptions as the SEC (the Private Fund Adviser Exemption and the Venture Capital Fund Adviser Exemption), but with the typical condition that the investment adviser must file a Form ADV to claim the applicable ERA exemption and provide "filing notice" to the state. Consequently, to comply with local state laws, an adviser may need to file a Form ADV as an ERA. This website summarizes the notice filing requirements (i.e., Form ADV filing) for advisers in each state. Common requirements that would necessitate an adviser to file a Form ADV as an ERA include: Having a place of business in the state; and Having more than 5 or 6 in-state clients. Some states automatically require you to file a Form ADV and give it notice if you maintain a place of business in the state. Conclusion Review your state’s laws on registration requirements as an ERA and determine if you have met the requirements to file a notice filing by filing a Form ADV as an ERA.

Yes, the loss from an investment that has gone to zero will be reflected in your tax package for the year, and you can write it off for tax purposes. In most cases, this will be a capital loss. The deductibility of capital losses depends on your unique tax situation, so we recommend you consult with your tax advisor. Since VC funds pass through tax liability to their investors , each investor must report gains/losses on their annual tax return.

IRS W-8 Forms are a group of tax forms specifically for non-resident aliens and foreign businesses who have either worked in or earned income in the US. It declares the applicant’s status as a non-resident alien or foreign national and informs financial companies that they will be taxed differently than a resident. These forms are only for foreign people and entities without citizenship or residency. A brief description of each form is listed below. Please refer to the instruction forms for specific details about each W-8 form. W-8BEN: Used by individuals to claim foreign status or treaty benefits. Individuals may also use it to claim treaty benefits for royalty/passive income treaty benefits. A U.S. tax identification number is required for exemption from tax withholding. All fields in line 10 must be completed to claim exemption on Royalty payments. Instructions: http://www.irs.gov/pub/irs-pdf/iw8ben.pdf Form: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf W-8BEN-E: Used by foreign entities to claim foreign status, treaty benefits, or to document chapter 4 status. A U.S. tax identification number is required for exemption from tax withholding. Instructions: http://www.irs.gov/pub/irs-pdf/iw8bene.pdf Form: http://www.irs.gov/pub/irspdf/fw8bene.pdf W-8ECI: Used primarily by the payee or beneficial owner indicating that all the income listed on the form is effectively connected with the conduct of a trade or business within the United States. The type of income must be identified on Line 9 of the form to qualify for exemption. If it is not listed we are required to obtain from the entity a different type of W-8 form. A U.S. tax identification number is required for exemption from tax withholding. Instructions: http://www.irs.gov/pub/irs-pdf/iw8eci.pdf Form: http://www.irs.gov/pub/irs-pdf/fw8eci.pdf W-8EXP: Used by the following entities to claim exemption from tax withholding, foreign governments, foreign tax-exempt organization, foreign private foundations, the government of U.S. possession, or foreign central bank of issue.The entity must be claiming exemption under IRS code 115(2), 501(c), 892, 895, or 1443(b). Otherwise, they need to file a W-8BEN or W-8ECI. Instructions: http://www.irs.gov/pub/irs-pdf/iw8exp.pdf Form: http://www.irs.gov/pub/irs-pdf/fw8exp.pdf W-8IMY: Used by an intermediary, a withholding foreign partnership, a withholding foreign trust, or flow-through entity. Copies of appropriate withholding certificates, doc. Documentary evidence and withholding statements must be attached to the W-8IMY. Instructions: http://www.irs.gov/pub/irs-pdf/iw8imy.pdf Form: http://www.irs.gov/pub/irs-pdf/fw8imy.pdf Important note: Sydecar does not have the legal authority to advise which W-8 Form is most appropriate. Please contact your tax advisor with any questions or concerns.

Taxable income and expense may be treated differently than accounting income. In general, for the majority of SPVs, no taxable income or expense should occur during the year. Convertible Note Interest: Under U.S. tax law, the interest that accrues on convertible notes during a period usually must be included in taxable income even when the company does not have an obligation to pay it during the period. Passthrough Income from LLCs and Partnerships: If you invest in a fund that invests using a passthrough operating portfolio company, that operating company may pass-through taxable income without a corresponding cash distribution. This allocation may in turn flow through to your K-1.

Box 13, Code W on Schedule K-1 reports expenses that do not fall into any other category of deductions. For example, Management Fees are an expense charged to the SPV that appear in box 13W and are classified as other miscellaneous itemized deductions subject to the 2% AGI limit. However, as a result of the Tax Cuts and Jobs Act (TCJA) in 2018, investment-related expenses previously deductible are not available as a deduction on your tax return.

An SPV (”Special Purpose Vehicle”) enables a group of investors to pool capital to invest in a single company. Deal leads build a relationship with a company, acquire an allocation into their funding round, and then aggregate capital via the SPV, which invests as a single shareholder on the cap table.

An Exempt Reporting Adviser (ERA) is an adviser to "Qualifying VC" funds that registers with FINRA and the SEC using the short-form Form ADV.  A Form ADV is a regulatory disclosure form required for investment advisers who must register with the SEC or who are claiming an exemption from registration with the SEC.  Advisers claiming an exemption from registration with the SEC are known as Exempt Reporting Advisers. They are not required to file the full Form ADV with the SEC and instead submit an abbreviated Form ADV.  Advisers can claim ERA status with the SEC in two ways, either using the Private Fund Adviser Exemption (for managing less than $150M in assets) or the Venture Capital Fund Adviser Exemption (for advising a qualifying venture capital strategy fund). You can learn more about this requirement in the SEC’s “VC Exemption,” Rule 203(l)-1 of the Advisers Act. If you are advising your investors (or LPs) and taking carry, you may need to file a Form ADV. You have 60 days from the date of your first securities offering to do so. Investment advisers must still comply with their local state laws. Generally, all states recognize the same exemptions as the SEC (the Private Fund Adviser Exemption and the Venture Capital Fund Adviser Exemption), but with the typical condition that the investment adviser must file a Form ADV to claim the applicable ERA exemption and give “filing notice” to the state. Consequently, to comply with local state laws, an adviser may need to file a Form ADV as an ERA. This website summarizes the notice filing requirements (i.e. Form ADV filing) for advisers in each state. Common requirements that would require an adviser to file a Form ADV as an ERA include: having a place of business in the state; and having more than 5 or 6 in-state clients. Some states automatically require you to file a Form ADV and give notice if you maintain a place of business in the state.  Review your state’s laws on registration requirements as an ERA and determine if you have met the requirements to file a notice filing through the filing a Form ADV as an ERA. If so, then you have 60 days to make the Form ADV filing. Please see here for more information about the Form ADV and what it includes.

Accredited investor rules are defined by law and apply only to private offerings made under Regulation D or Rule 506(b) of Regulation D. The rules for accredited investor status are set by the SEC, which defines an accredited investor as "any person who comes within any one of the following categories, or who the issuer reasonably believes come within any one of the following categories, at the time of the sale of securities to that person: Individuals with annual income over $200K (individually) or $300K (with spouse or spousal equivalent) in each of the last 2 years and an expectation of the same this year Individuals with net assets over $1 million, excluding the primary residence (unless more is owed on the mortgage than the residence is worth) An institution with over $5 million in assets, such as a venture fund or a trust An entity made up entirely of accredited investors SEC- and state-registered investment advisers Exempt reporting advisers filing with the SEC Individuals with certain professional certifications (Series 7, Series 65, and Series 82 license) "Family Offices” with over $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act Any entity with over $5 million in investments and that was not formed for the specific purpose of investing in the securities offered If an investor has a pre-existing relationship with a deal sponsor, then they are not required to provide verifiable evidence of their accreditation status. Verifiable means that you can show the documentation to a third party, such as an accountant or financial advisor. If you want to invest in startups or venture capital funds, it's important that you know if you're an accredited investor. Accredited investors are a specific type of investor who have been deemed by the SEC to be "qualified" to make these sorts of investments.

Investors in an SPV will be indirect holders of securities in the portfolio company. Investors will not invest directly into the company. Instead, the deal lead will pool the capital into a “special purpose vehicle” (SPV), which will then invest into a company. SPVs on Sydecar are formed as Series LLCs, a type of company that provides liability protection. Series LLCs are part of a master series structure in which a master LLC is registered, allowing for a large number of series LLCs to be established under the name of the master LLC without additional registration. Because the master LLC is the only entity that needs to be registered, the master series is more cost-effective (as it avoids the need for annual state fees and registered agent costs). At the same time, because each series will have separate ownership structures, memberships, and operating agreements, the assets and liabilities are insulated from one another.

You have to be an accredited investor to invest in deals offered under Regulation D. Opportunities for accredited individuals will be different from non-accredited individuals, options available for non-accredited investors include certain types of bonds, real estate, equities, and other securities. As defined by the SEC, an accredited investor is an individual who meets one of the following requirements: Individuals with annual income over $200K (individually) or $300K (with spouse or spousal equivalent) in each of the last 2 years and an expectation of the same this year Individuals with net assets over $1 million, excluding the primary residence (unless more is owed on the mortgage than the residence is worth) An institution with over $5 million in assets, such as a venture fund or a trust An entity made up entirely of accredited investors SEC- and state-registered investment advisers Exempt reporting advisers filing with the SEC Individuals with certain professional certifications (Series 7, Series 65, and Series 82 license) "Family Offices” with over $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act Any entity that holds over $5 million in investments and that was not formed for the specific purpose of investing in the securities offered

Deal leads typically don’t charge their investors management fees for SPVs. Since capital is only deployed once, the deal lead is not actively managing funds across a period of time. That said, many of our customers do choose to have a management fee. You do not need to charge a management fee to cover the Sydecar admin fee, since this fee is passed through to your investors pro-rata through the Sydecar platform. However, some deal leads choose to charge a one-year fee to cover additional expenses.

If you are organizing an SPV that is investing in another SPV, a fund, a secondary transaction, cryptocurrency, or anything else aside from a private company, you may be making a “non-qualifying investment.” If the total value of investments that you manage is greater than $150M, you may: 1) have to register as an investment advisor with the SEC 2) be limited to raising money from qualified clients, and 3) have to audit financials annually Before making this type of investment, you may want to read more about pursuing a “non-VC” strategy and consult counsel.

No. A deal lead does not have to meet the income, assets, or certification requirements of an accredited investor to launch an SPV.

Ideally, you should launch an SPV after you’ve lined up an allocation into a company’s funding round and have some prospective investors. Are you reasonably confident that you can successfully raise the target allocation amount and close the deal? If so, now is a great time to launch your SPV! If you’re new to Sydecar, please visit sydecar.io to request access to the platform. Sydecar handles all the logistics for you (no, really!) so all you have to bring is the deal you’d like to get done.

Certain “advanced rights” are typically granted to larger investors only (dictated by an ownership percentage). If these rights are granted, they will be granted to the SPV rather than the individual investors who own a stake in the SPV. Pro-rata rights give investors the option to invest in a company's future financing round. Information rights dictate what company data (such as financial details) an investor has the right to access or request. The most favored nations clause (MFN) protects early investors by giving them access to the same rights and benefits received by later investors if those rights and benefits are more favorable. MFN rights are typically relevant when an investor uses a SAFE or convertible note and wants to protect their access to a favorable valuation cap, discount, or interest rate given to future investors.

You can lead deals either as an individual or under an entity. Creating an entity, such as an LLC, to act as the deal lead can be beneficial because it gives you limited liability protection. Additionally, if you are organizing a high volume of deals with multiple parties, creating an LLC can be an efficient way to share carry/fees with multiple LLC owners.

Deal leads make money from carry (or “carried interest”). SPV leads don’t typically charge their investors management fees. Since capital is only deployed once, the deal lead is not actively managing funds across a period of time.