USE CASE · U.S. VENTURE CAPITAL
The U.S. investor has sent a term sheet. What do these terms mean for us?
A term sheet from a U.S. investor can outline the most important financial terms of a funding round in just a few pages. In addition to valuation and equity stake, liquidation preference, option pool, anti-dilution provisions, founder vesting, and control rights can shape the founders’ position over the long term.
We assist startups and technology companies from German-speaking countries with funding rounds involving U.S. venture capital firms, corporate venture funds, and strategic investors. Matthias Schuhmacher and Raphael Tautz coordinate the support; the U.S. corporate team provides assistance with U.S. market standards and contract negotiations.
The Case at a Glance
Background
A U.S. investor has presented a term sheet or proposed specific terms for an investment.
Objective
Understand the economic and compliance implications before signing and identify the key points for negotiation.
Support
German-speaking U.S. attorneys review the terms and coordinate the negotiations with the U.S. investor and the German advisors.
Your Situation
U.S. term sheets use terms and mechanisms that originate from U.S. venture capital practice. A high valuation can be put into economic perspective if, at the same time, a large pre-money option pool, a broad liquidation preference, or strong anti-dilution rights are agreed upon.
Governance provisions also deserve early attention. Board or observer rights, information rights, and approval requirements can give investors influence that extends beyond their mere equity stake. Many of these points are difficult to renegotiate in principle once the term sheet has been signed.
Our Support
We review the term sheet from the perspective of U.S. venture capital practice and explain which clauses are standard in the market, where there is room for negotiation, and which provisions may be particularly relevant to founders or existing shareholders.
If necessary, we calculate the financial impact of individual clauses based on specific financing and exit scenarios and assist in coordinating with the investor or the investor’s U.S. counsel. The implementation under German corporate law is coordinated with the relevant German advisors.
Review the U.S. term sheet before signing it
Please send us the term sheet and the current cap table. We will clarify the key financial and legal issues and discuss which matters should be addressed before signing.
Assessing a U.S. Term Sheet from an Economic and Legal Perspective
The key points often lie not in a single clause, but in the interplay of valuation, dilution, exit economics, and investor rights.
Valuation, Option Pool, and Dilution
Understanding the actual stake after the round.
In addition to pre-money and post-money valuations, how a new or expanded option pool is handled is crucial. If it is established before the investment, the resulting dilution can have a particularly significant financial impact on existing shareholders.
Together, we review the cap table, option pool, and ownership structure, and explain how the proposed funding round will affect the founders and existing investors.
Liquidation Preference and Exit Economics
Run through the distribution of sales proceeds in advance.
Liquidation preferences determine whether and to what extent an investor has a preferential claim to the proceeds in the event of an exit. Differences between participating and non-participating structures, or between single and multiple preferences, can be significant when exit values are low.
We will analyze the clause and examine its impact in conjunction with conversion, seniority, and other exit provisions.
Investor Rights and Governance
Examine how the rights to oversight and information interact.
Board seats, observer rights, protective provisions, and information rights can affect a company’s freedom of action. Particularly relevant are approval requirements for financing, M&A, budgets, material contracts, or IP transactions.
We review whether the requested rights are appropriate for the scope of the investment and the specific financing round, and identify which factors should be taken into account for future rounds.
Founder Vesting, Anti-Dilution, and Follow-On Rounds
Consider the long-term implications for founders and future financing rounds.
Founder vesting can also be newly mandated for companies that have been in existence for some time. Anti-dilution provisions, in turn, affect the distribution of shares during subsequent down rounds. Pro-rata rights can determine the extent to which an investor can maintain or increase their stake in subsequent funding rounds.
We do not view these mechanisms in isolation, but rather in light of the company's development to date and its expected future financing.
Your Contacts
Dr. Raphael Tautz and Matthias Schuhmacher coordinate German-language support and liaise with the U.S. Corporate Practice. For U.S. transaction matters, Oded Kadosh and Benjamin Waltuch, in particular, can be brought on board.
Partner · STEM Practice Group
Your contact in Munich
Partner · STEM Practice Group
Your contact in Munich
Frequently Asked Questions
Ideally, before signing. Even though many provisions are worded in a non-binding manner, the term sheet typically sets out the economic expectations of both parties for the subsequent contract documentation.
In simple terms, it specifies the amount an investor receives in the event of certain exit scenarios, before or at the same time as proceeds are distributed to the other shareholders. The specific terms of this provision can significantly affect the distribution of proceeds.
An additional stock option pool can dilute the existing shareholders' stakes. A key factor is whether the expansion is included in the valuation before or after the investment.
These provisions can protect an investor from having to pay lower prices in subsequent financing rounds. The economic impact depends on the specific calculation method and the agreed-upon exceptions.
Yes. We can discuss the economic and contractual issues typical of the U.S. directly with the investor or the investor’s counsel and coordinate the implementation with the German advisors.
Additional Information
Corporate & Transactions
Corporate Law, Venture Capital, and U.S.-Related Transactions.
U.S. Investor Due Diligence + IP Ownership Review
Preparation for legal and IP due diligence by a U.S. investor.
Primary Sources / Legal Bases
Selection of primary and original sources particularly relevant to this use case:
- NVCA Model Legal Documents – U.S. venture capital model documents and industry standards; not a primary legal source, but a key original source for U.S. venture capital practice.
- Law on Limited Liability Companies (GmbHG) – The primary source for the implementation, under corporate law, of an ownership interest in a German GmbH.
German 
English (United States) 
English (UK)