Term sheet etiquette for VCs and founders:
VCs:
1) Don’t give crazy short exploding deadlines (e.g. <48 hours).
2) If there are special deals for founders (new option grants, secondary), offer them to employees as well.
3) Aside from standard legal DD, if you have more business diligence to perform, don’t issue an early TS and ask for exclusivity to finish it. Finish it first.
4) If a founder has already signed a TS with another firm, it’s poor form to try to blow it up and pressure the founder to renege.
5) Don’t try to alter the terms of a deal after it’s been signed.
Founders:
1) While I think it’s acceptable to leverage a term sheet to get other offers, don’t share details on the offer without permission from the investor.
2) While short fuses on term sheets are lame, don’t leave a TS hanging. Make a decision in a timely manner (a week is reasonable).
3) Don’t lie about term sheets you don’t have. Word gets around fast. You don’t have a real offer until you have a written document.
4) Once you sign a TS, you have given your word to partner with the VC at the agreed upon terms. Unless something egregious happens afterward (terms change, you uncover a huge red flag about the VC), you are ethically bound to close the deal.