The key clauses in an angel term sheet.

Ask a first-time angel what they negotiated on a deal and most will quote you the valuation. Ask them about the liquidation preference and you'll often get a blank look. That's the wrong way round. The valuation is one number on the front page; the clauses behind it decide who actually gets paid, who keeps control, and whether the tax relief you were counting on survives the deal at all.

A term sheet bundles those clauses into three or four pages of deceptively calm language. Below is what the load-bearing ones do, grouped the way it's worth reading them: the economics, the protections, the controls, and the British footnote that catches people out. For the wider picture of what a term sheet is and what binds you, see our guide to the term sheet itself. Here we're going clause by clause.

The economics: what your cheque actually buys

Start with the clauses that set the price and the slice. They look like simple arithmetic. They aren't.

Valuation and the option pool

The valuation is quoted pre-money (before the round goes in) or post-money (after). A company valued at £4 million pre-money taking £1 million is worth £5 million post-money, and the new money owns 20%. Same headline, different ownership depending on which you're shown - so confirm it. Sitting next to it is the option pool, the shares reserved for future hires. Where the pool is created in the maths quietly moves ownership: carved out of the pre-money figure, the founders absorb the dilution; created afterwards, the incoming investors share it. A routine-looking line that shifts real percentages.

Liquidation preference

This is the one to read twice. The liquidation preference decides who gets paid first, and how much, when the company is sold or wound up. A 1x non-participating preference - the common, founder-friendly seed position - lets the holder take back their original money before ordinary shareholders see a penny, then choose the larger of that sum or their straight percentage of the proceeds. A participating preference is hungrier: the holder takes their money back and then shares in what's left. Stack a few of those across rounds, add a multiple above 1x, and a modest exit can be eaten before founders and early angels get anything. In a 4x outcome it barely registers; in the far more common single-digit exit, it's the difference between a decent return and a token one.

The valuation is one number on the front page. The clauses behind it decide who gets paid.

The protections: what happens at the next round

The next two clauses only bite later - when the company raises again. They're easy to wave through and expensive to ignore.

Anti-dilution

Anti-dilution protects an investor if the company later raises at a lower price - a down round. The mild, widely accepted form is broad-based weighted average, which nudges your position to compensate. The aggressive form, full ratchet, reprices your earlier shares as if you'd paid the lower price all along, and lands hard on everyone without the protection. As an angel you might be the party shielded by this clause or the one diluted by someone else's, so the question is always: which flavour, and who's holding it?

Pro-rata rights

Pro-rata rights let you put more money into future rounds to hold your percentage as the company raises again. This is one of the few clauses an angel should actively want: when a company does well, the right to keep your slice is valuable, and getting squeezed out of the rounds that compound is a common quiet regret. It costs the founders nothing to grant and can matter to you later.

The controls: who steers the company

Past the money sit the governance clauses - who makes decisions, and who can be carried along by a majority.

• Board composition. Who sits on the board, who appoints them, and whether the round earns a seat or an observer right. As a single angel you rarely get a seat; a syndicate lead often does, and votes for the whole line on the cap table.
• Consent rights (protective provisions). Decisions - new debt, selling the company, issuing more shares, changing the articles - that need investor sign-off. Reasonable in principle; worth checking the list isn't so long it stalls ordinary business.
• Information rights. The accounts and updates you're entitled to receive, and how often - the difference between knowing how your investment is doing and finding out at the next raise.
• Drag-along. Lets a defined majority force the minority - possibly you - to sell on the same terms if they agree to an exit. It stops a lone holdout blocking a sale, but it can also carry you out of a deal you'd rather keep.
• Tag-along. The mirror image, and in your favour: if larger holders sell, you can join on the same terms rather than being left behind in a company with a new majority owner.

The people clauses: vesting and warranties

Two clauses are really about trust in the founders rather than the maths.

Founder vesting means the founders earn their shares over time - classically four years with a one-year cliff - rather than owning them outright from day one. Leave early and the company can claw back the unvested portion. For an angel this is protection, not red tape: it keeps the people you backed working on the business and stops a departing co-founder sitting on a large idle stake. Read the leaver provisions alongside it - how a "good leaver" is treated versus a "bad leaver" decides what happens when someone walks.

Warranties are the founders' formal promises that what they've told you is true - that they own the IP, that there's no undisclosed litigation, that the accounts are honest. They firm up in the long-form documents, but the term sheet often signals their scope. They're your recourse if a material thing turns out to be untrue.

The British footnote: clauses that break SEIS/EIS relief

Here's the wrinkle that catches UK angels specifically. SEIS and EIS relief generally require ordinary shares carrying no preferential right to your money or assets. So several of the clauses above - a liquidation preference on the angel shares, a guaranteed or cumulative dividend, redemption rights that let you demand your money back - can disqualify the relief on those shares. The clause that protects your downside can cancel the tax break that was half the reason the downside felt survivable.

The reliefs are worth being precise about. SEIS gives 50% income tax relief on up to £200,000 per tax year, on a three-year minimum hold, with a capital-gains exemption on the shares if held three years and the income tax relief was received, plus loss relief and carry-back to the previous tax year. EIS gives 30% on up to £1,000,000 per tax year - or £2,000,000 if at least £1,000,000 goes into knowledge-intensive companies - also on a three-year hold, with CGT deferral relief, the same gains exemption, loss relief, and carry-back. Both depend on the company qualifying. On the EIS company side that broadly means gross assets no more than £30 million before the shares are issued, fewer than 250 full-time-equivalent employees, within seven years of first commercial sale, and inside the venture-capital-scheme funding caps (up to £10 million in any 12-month period and £24 million over the company's lifetime, with higher limits for knowledge-intensive companies). Some company-side figures were revisited for 2026, so confirm the number for a specific deal on HMRC's EIS guidance on gov.uk.

The mechanics are the same for both: the company needs advance assurance from HMRC before the round, and issues you an SEIS3 or EIS3 certificate after your shares are, which you use to claim through Self Assessment. You generally need to be a UK taxpayer for any of it to be worth having. The practical point: if relief is part of why you're investing, have the share structure on the term sheet checked before you sign.

Reading the clauses in the right order

Work backwards from most people's instinct. Find the liquidation preference first and understand the multiple and whether it participates. Check anti-dilution and whether you have pro-rata rights. Read the control clauses - especially drag-along - so you know who can force a sale. Confirm founder vesting is there. Make sure the share class keeps your SEIS or EIS relief intact. The valuation, the thing everyone leads with, can wait until you've read all of that, because the clauses underneath it are what turn a headline number into a real return.

And a line on what this article is and isn't: it's general information, not financial or investment advice. A term sheet is a legal document and the tax rules around it change. Before you sign one, take advice from an FCA-regulated adviser and a solicitor, and confirm the current tax position with HMRC on gov.uk.

Frequently asked questions