The term sheet is not just a summary of key economic terms. It also tries to outline the proposed control that investors and founders have over the future of the business.

Board representation, and the process for electing new Board members, are both key control mechanisms that will be outlined in the term sheet.

Your Board of directors serves as the primary decision-making body in your company, especially on high-stakes issues such as corporate strategy, fundraising, and major hiring decisions.

In the early stages, founders and management typically control the Board, which allows them to retain autonomy in guiding the business. However, as you bring on investors, they will often seek representation on the Board to protect their interests.

Looking at the data from our 2025 Term Sheet Guide, 76% of term sheets in 2024 had an investor representative on the Board, a figure that jumps to 86% when we include Board observers¹. These figures show just how common it is for investors to secure a seat at the table – a standard from Series A onwards.

Investors typically seek either a Board director seat or an observer role. A Board director holds voting rights, giving them a direct say in company decisions. A Board observer, on the other hand, does not have voting rights but still participates in Board meetings and discussions. Observers will then report back to other members of their investment team.

The term sheet will often specify a minimum shareholding required for an investor to gain a seat on the Board. This typically ranges from 1% to 10% of the issued voting capital, with 5% being a key threshold ¹  for many companies. Setting this minimum is critical, as it ensures that only significant investors with meaningful stakes in the company gain Board representation.

As a founder, you should be cautious about diluting Board control by giving away seats too freely.

One of the most concerning terms that can appear in a term sheet is the concept of “swamping rights”.

This allows investors to take control of the Board if the company faces a material breach or underperformance. These rights are often seen as "aggressive" and can lead to situations where founders lose significant control over their own business.

From the founder’s perspective, it's vital to negotiate these terms early on. If a potential investor is pushing for swamping rights, it's worth exploring alternative structures that allow them to feel protected while avoiding an outright takeover in challenging times. For example, consider a Board structure where investors have limited decision-making power unless certain performance metrics are triggered.

It’s essential to approach Board composition discussions strategically. You need to balance maintaining control of your company with offering investors enough governance rights to feel confident in their investment.

1. Start small and scale: In early funding rounds, such as pre-Seed or Seed, it's common for founders to have full control; there may be a small Board comprised mostly of the founding team. As you raise more capital, you'll need to consider making room for investor representation, but don’t over-commit too early. It's easier to add Board seats in later rounds than to try and regain them after they've been given away.
2. Set shareholding thresholds for Board seats: Make sure that your term sheet includes minimum thresholds for shareholding to qualify for a Board seat. Setting this at around 5% of the issued voting share capital is a common practice and helps ensure that only significant investors have a say in key decisions.
3. Clarify roles and voting rights: Not all Board members need to have voting rights. Using Board observers for smaller investors or in early rounds can give you the benefit of their advice without diluting your control. Ensure that you also clarify the roles and influence of Board observers early on.
4. Avoid swamping rights: Push back against any terms that allow investors to take control in underperformance scenarios. Instead, structure agreements that protect you and your founding team from being pushed out of your company.
5. Build a meaningful relationship: It is crucial to remember that you are building a relationship that’s very much like a marriage. Remember, a relationship with your VC can last a decade and, as in any relationship, open communication about expectations will be key for all parties.