Securing investment is a make-or-break moment for any founder. But when an investor finally makes a formal offer — known as a term sheet — how do you know if you’re getting a fair deal?
The 2026 Venture Capital Term Sheet Guide by HSBC Innovation Banking shows the current UK funding landscape is split between AI and deeptech companies, which are gaining more investor interest and getting more founder friendly terms by VCs, and businesses in other sectors which are facing stricter terms.
Investors are also concentrating their capital into fewer, high-growth companies, with larger deals making up 31% of all term sheets, up from 26% in 2024.
Despite the surge in AI and deeptech, fintech and life sciences also remain two of the largest areas of venture investment in the UK.
Sifted sat down with Glen Waters, Head of Tech and Life sciences Banking at HSBC Innovation Banking, and Francisco Vigo, cofounder and CEO of AI visibility company geoSurge, to unpack key term sheet trends in the UK and how founders can navigate fair investment deals.
High demand in deeptech sectors
The HSBC Innovation Banking term sheet guide outlines what Waters describes as a “barbell” market,” where capital is heavily concentrated at the extremes.
“There's a lot of momentum for larger fundraises for high-growth companies as well as appetite for early-stage businesses,” he says.
AI and deeptech companies are the ones gaining most from this.
During GeoSurge’s most recent fundraise, which saw a close of a $12m seed round, the company witnessed “an insane amount of interest,” says Vigo. “Venture capitalists understand the UK needs to lead on the AI revolution. If you’re solving a problem using AI, there’s usually enough capital to fund you.”
The moment you have multiple term sheets, you can negotiate your terms much better.
Because AI deals are so sought after, founders have the leverage to ask for terms that protect both their equity and their autonomy. These can include keeping majority control of board decisions, and limiting the number of day-to-day decisions that require investor approval so the company can execute quickly.
“Founders in deeptech sectors are able to command a premium and terms are often founder-friendly,” says Waters, adding that investors are less keen on companies at the very early-stage and in other sectors.
To capitalise on this founder-friendly environment, startups must create competition among investors, advises Vigo.
“If you only have one term sheet and your runway is running out, then investors can say that they’re expecting more,” he says. “The moment you have multiple term sheets, you can negotiate your terms much better.”
Understanding valuation and control rights
When a founder receives a term sheet, it can be easy to fixate on valuation.
But the underlying legal framework — dictating things such as board control and what happens if a cofounder leaves — is often more important. Navigating a term sheet requires founders to understand the trade-offs investors make to protect their capital.
The best thing I've found is to offer a simple structure and a fair valuation, which works for both parties.
Investors have specific returns they must hit, so a high valuation comes with structural terms, says Waters.
“[As an investor], I could give you a really high valuation,” he says. “But the way I make that [money] back is on an exit, through what is called a liquidation preference.”
A liquidation preference is a clause that decides who gets paid first and how much money they receive when a company exits, closes down or goes bankrupt. It’s designed to protect investors by making sure they get their money back before other shareholders.
"The best thing I've found is to offer a simple structure and a fair valuation, which works for both parties. The valuation that really matters is the one on exit,” Waters adds.
Venture capitalists typically hold minority stakes, so they rely on control rights to influence a company's direction. “The important thing as a founder is to know what those control rights mean so you're not going in blind,” Waters says.
Go for a massive market and go big.
"Where we've seen it go wrong in the past is where you have aggressive control rights in the form of swamping rights,” he adds.
These rights allow investors to have enhanced voting control, majority shares or board dominance upon specific triggers. These triggers can include a company experiencing financial distress, missing budget milestones or facing insolvency.
The UK market operates fairly and investors are generally very reasonable, says Vigo.
“They want to make sure the capital is well spent. When a VC sends you a term sheet, they're already so interested in the company, they're not going to let the deal drop for minor changes.”
He also urges companies to “go big or go home” when looking at strategy.
“When you raise capital, you need to understand the incentives of the investors. Go for a massive market and go big.”
Other founder-friendly terms include:
- High-threshold ‘drag-along’ rights: This clause states that if a certain percentage of shareholders agree to sell the company, everyone else must sell their shares too. A founder-friendly term sheet ensures the threshold to trigger this is high and will require the consent of the founders and the majority of investors.
- A short ‘no-shop’ clause: This clause means a founder must avoid pitching to other investors while their current VC does their final background checks. A founder-friendly term sheet keeps this window short so if a deal falls through, founders can go back to the market quickly.
- Accelerated vesting: Founders usually have to ‘earn’ their shares over a period of time through a vesting schedule. But if a company is acquired and new owners immediately fire previous founders, a founder-friendly term ensures that all remaining unearned shares still belong to them.
Capital dynamics
The source and structure of capital often influence the terms a founder will receive. In the UK, there’s currently a contrast between the funding landscape in London and other regions.
London benefits from a concentrated pool of capital. This increases competition among investors, which can often translate into more founder-friendly terms.
“A lot of investors are based in London and are headquartered there. You've got more capital there and that's just a fact,” says Waters.
But this is starting to change. Over 50% of seed deals in sectors like life sciences, cleantech and energy take place in regions outside London, driven by Enterprise Investment Schemes (EIS) and Venture Capital Trust (VCT) funds.
The EIS is a UK government initiative designed to help smaller, higher-risk startups raise capital by offering generous tax reliefs to individual investors. Investors can gain 30% income tax relief on investments up to £1m per tax year.
Founders in deeptech sectors are able to command a premium and terms are often founder-friendly.
A VCT is a publicly listed company in the UK that pools money from individual investors to fund smaller businesses.
Waters notes the EIS and VCT funds are critical to the UK’s ecosystem, converting private savings into productive risk capital for the next generation of companies. They help bridge the funding gap at the earliest stages and ensure UK ventures have capital to scale.
The main goal of EIS funds and VCT’s is capital protection for their investors. Instead of relying on one big success, they aim for six to eight of their 10 investments to yield a return.
That’s in contrast to a traditional, “American-style” VC model built on the expectation that out of 10 investments, one "moonshot" will return the entire fund, says Waters.
Because EIS and VCT funds can’t afford high failure rates, they actively mitigate risk. Term sheets from these funds often include more rigorous terms such as strict financial reporting requirements, consent rights and often with arrangement and monitoring fees, which founders should be aware of.
