Term sheets explained: What founders often overlook.

1. Introduction: Setting the Stage for the 2026-2027 Funding Landscape

A term sheet is far more than a summary of a deal; it is the “legal DNA” of your startup’s future. While founders often fixate on headline valuation, the true impact of a deal lies in structural clauses. These dictate long-term control and the distribution of exit proceeds.

In the Dutch economic landscape of 2026-2027, investor protections have become sharper. Market volatility has led to a rise in “hedge-fund style” provisions. Although many clauses are technically “non-binding,” they set a commercial precedent. This is notoriously difficult to reverse once the formal notarial process begins. Understanding these mechanics now is essential to protecting your interests.

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2. The Hidden Weight of Liquidation Preferences

Liquidation preferences dictate the order and amount of payouts during a “liquidation event,” such as an acquisition or merger. This clause is often the most significant economic factor after valuation.

Non-Participating vs. Participating Models

• 1x Non-Participating: This is the founder-friendly standard. Investors receive their initial investment back first, or they can choose to convert to common shares.
• Participating Preferred: Often called a “double dip,” this allows investors to receive their initial investment back and share in the remaining proceeds alongside common shareholders.

The Conversion “Tipping Point” Investors possess a “conversion right.” This is a mathematical choice: if the pro-rata value of common shares exceeds the value of the 1x preference (plus any participation cap), the investor will convert to common shares to maximize their exit value.

2026 Market Red Flags

• Multiples (2x or 3x): Requiring 200% or 300% of the investment back before founders receive any proceeds.
• Uncapped Participation: Participating rights without a ceiling on total returns.
• Mandatory Seniority: New investors insisting their preference ranks ahead of all previous rounds, leaving early stakeholders last in line.

Founder’s Note: You must model an “exit waterfall” before signing. Use Scenario Modeling to visualize payouts at different prices (e.g., €10M vs. €100M). This reveals how much of your “headline valuation” is actually reachable.

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3. Anti-Dilution and Cumulative Dividends: Protecting the 2027 Upside

These clauses protect investors during “down-rounds” or market transitions.

• Normal Deal (Weighted Average): The “Broad-Based Weighted Average” is standard. It shares the pain of a lower valuation proportionally among all stakeholders.
• Red Flag (Full Ratchet): This resets the investor’s share price to the lowest new price. It severely punishes founders and early believers.
• Cumulative Dividends: We are seeing a 2026-2027 shift toward mandatory cumulative dividends (6-8%). Unlike non-cumulative dividends, these accumulate annually. They act as a guaranteed return added to the liquidation preference at exit.

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4. Governance and Exit Mechanics: Drag-Along, Tag-Along, and Veto Rights

Term sheets rewire how your company is controlled. These rights often exceed an investor’s ownership percentage.

Drag-Along Rights

Drag-along rights allow a majority to force a sale. This threshold is usually 75%. This ensures they can deliver 100% of the company. It prevents minority holders from blocking a deal.

Tag-Along Rights

Tag-along rights protect minority shareholders. If a majority sells, you can join that sale. This guarantees the same price and terms for everyone. You are not left behind with new owners.

Veto Rights and Reserved Matters

Veto rights cover specific operational decisions. These are often called “Reserved Matters.” Common examples include mergers or taking on debt. Investors also control changes to share classes.

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5. The Essential Dutch “BV” Framework and Liability Risks

Most international entrepreneurs at NextAccounting choose the Besloten Vennootschap (BV). It offers limited liability, protecting personal assets from business debts.

Compliance and Reporting

• The 7-Year Rule: All bookkeeping records must be stored for seven years. This is mandatory for Dutch tax compliance.
• UBO Register: You must report Ultimate Beneficial Owners. This applies to anyone owning 25% or more.
• The SBI Code Trap: Ensure your SBI code (business activity description) is accurate at the Chamber of Commerce (KvK). An incorrect code can block insurance or government funding.

Identity Compliance (KYC/AML) Checklist

1. UBO Identification: Provide valid ID for all significant owners.
2. Source of Funds: Verify where the investment capital originated.
3. Sanction Checks: Confirm the entity is not on international lists.

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6. Tax Compliance: Interest Deductions and the Distribution Test

The fiscal structure of your funding carries significant personal risks.

• Article 10a CITA: This regulation limits interest deductions on acquisition loans. You must pass a “Double Business Motives Test.” Note the hidden trap: even interest paid to unrelated parties can be excluded from deduction under certain complex structures.
• Abuse of Law (fraus legis): The Dutch Supreme Court may deny tax benefits if a structure conflicts with the “aim and purpose” of the law.
• Article 2:216 DCC Distribution Test: The board must perform a liquidity test before approving dividends. You must confirm the company can pay its debts for the next 12 months.

WARNING: If you approve a distribution that fails the liquidity test, the board faces joint and several liability for the deficiency.

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7. Employee Incentives: The ESOP and STAK Trap

Rewarding your team requires “cap table hygiene.”

• Stock Options vs. SARs: Options grant the right to buy shares. Stock Appreciation Rights (SARs) provide a cash or share payout based on value increases.
• Dutch SAFE Equivalents: For early-stage rounds, look at EPOS 3.0 or ASAP instruments. These are the Dutch-law equivalents of SAFEs.
• The STAK Model: A Dutch trust foundation (Stichting Administratiekantoor) centralizes voting rights while sharing economic value. The Trap: Founders often overlook that a STAK requires a notary for initial setup and every subsequent share transfer, increasing administrative costs.

• Closing new funding (Seed, Series A).
• Significant revenue surges or downturns.
• Material strategy pivots or major new contracts.

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8. The Final Choreography: The Dutch Notarial Closing

In the Netherlands, a Civil-Law Notary is a mandatory part of the closing process.

The Notary’s Role

Share issuances and amendments to the Articles of Association (Statuten) are only valid if notarized. For the rights in your term sheet “to bite,” they must be hard-wired into these official Articles through a process called “mirroring.”

The Escrow Process

Funds flow through the notary’s third-party account (escrow). They are released only after all deeds are signed.

Closing Day Timeline

1. Resolutions: Board and shareholders sign deal approvals.
2. Funds: Investors transfer capital to the notary’s escrow.
3. Execution: The notary executes the Deed of Issue and amends the Articles.
4. Release: The notary releases funds to the company account.
5. Registration: The notary files changes with the Chamber of Commerce.

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9. Conclusion: Success Through Structural Clarity

A high valuation cannot fix a broken legal structure. In the 2026-2027 landscape, clean terms and a transparent exit waterfall are essential. Correcting your foundations today ensures your Series B round in 2027 remains on track.

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10. How NextAccounting can help you

Navigating Dutch corporate finance requires deep local expertise. NextAccounting provides the technical execution needed for the 2026-2027 environment.

Our team specializes in reviewing term sheets to identify structural risks and modeling exit waterfalls to protect founder interests. We ensure full compliance with the Article 10a CITA interest deduction rules and the Article 2:216 DCC distribution tests. While this guide provides a foundation, every deal requires tailored advice. We invite you to visit our website for a direct consultation to discuss your specific funding requirements.

Sources

• 5 term sheet mistakes startup founders must avoid – Digify
• A Founder’s Guide to Navigating Toxic Term Sheet Clauses in VC Funding for Startups
• AI Scaling Challenges for Dutch Founders Report – Techleap
• Applying for a business loan or financing – Business.gov.nl
• Arrange financing | Business.gov.nl
• Budget day in the Netherlands: New tax regulations’ impact on business – Hogan Lovells
• Business | Tax Administration – Belastingdienst
• Business.gov.nl | Dutch government information for entrepreneurs
• Common Mistakes for Foreign Entrepreneurs in the Netherlands – Intercompany Solutions
• Common Pitfalls In Venture Capital Term Sheets • Startup Law Firm – Chatterjee Legal
• Contracting With Dutch Parties: Common Mistakes To Avoid Now
• Contractual Exit Rights in Stockholders’ Agreements: Enforcement and Strategic Considerations under English and Delaware Law