A seed term sheet uses a dozen phrases as if everyone already agrees on what they mean. These five decide how much of your firm's economics you keep.
Each entry covers what the term is, how often it shows up, and what it does to you. The prevalence figures come mostly from Seward & Kissel's seed studies, which count terms in the deals the firm observes. Most of the detailed numbers are from its 2014 to 2018 study, because the newer editions are not public in full. Treat them as historical benchmarks, and note that Seward & Kissel's 2025 study says seed capital is now split nearly evenly between hedge funds and private equity or private credit, so older figures may describe hedge fund deals best.
Founders class
What it is. A share class for early investors with lower management fees, lower incentive fees, or both, in exchange for committing capital before the fund has a record.
How common. Common. In Seward & Kissel's 2025 New Manager Hedge Fund Study, which covers funds launched by new U.S. managers that are clients of the firm, about 69 percent of equity funds and 33 percent of non-equity funds offered founders-class terms. The year before, the equity figure had jumped to about 70 percent from 49 percent (2024 study).
What it means for you. Lower fees on early money, in return for early money existing at all. The details worth settling are how long founders terms last and how much of the fund they can occupy, because a generous founders class is a discount you keep granting for years.
Capacity rights
What it is. The seeder's right to invest more with you later, in the seeded fund or in other products, reserved either as a fixed dollar amount or as a percentage of a vehicle's AUM. Seeders usually want that later capital on the same preferential terms as the seed.
How common. Most deals include them. They showed up in a large majority of the seed deals in Seward & Kissel's 2014 to 2018 data. A related right is broader still: in at least 90 percent of deals over that period, the seeder's participation extended to all of the manager's new products.
What it means for you. Flexibility. If the strategy has a real ceiling on how much it can hold, capacity promised to the seeder is capacity you cannot later offer a large allocator. Generous on day one can feel expensive once the strategy is full.
Sunset and step-down
What it is. Provisions that reduce the seeder's revenue share over time or at set asset levels (a step-down), end it after a set period (a sunset), or terminate it in defined circumstances. Tannenbaum Helpern describes sunsets as typically scaling the share down over time or as the fund reaches certain asset levels.
How common. The minority. Seward & Kissel found some form of step-down, sunset or termination in 20 to 30 percent of its annual observations from 2014 to 2018, and described it as somewhat uncommon.
What it means for you. This can matter more than the headline percentage. Depending on how fast the firm grows, a higher share that ends after a few years can cost less over a decade than a lower share that never ends. Because it is not the default, it usually has to be asked for, and it is worth modeling both versions before anchoring on the percentage alone.
Tail rights
What it is. The seeder's right to receive its seed economics in any business started or managed by a key person within a set period after that person leaves the seeded firm. The idea is that the goodwill the seed helped create should not simply walk out of the door.
How common. Common. A five-year tail was the most observed period in Seward & Kissel's 2014 to 2018 data, in slightly less than half of seed deals, with three years or less next most common. Its 2020 study describes the most common form as a tail triggered if the key person starts a new business within five years of leaving, which can then run indefinitely.
What it means for you. The deal can follow you to your next firm. The points to pin down are the length of the trigger period, whether the tail is time-limited once triggered, and what counts as starting or managing a new business.
Key-person non-compete
What it is. A restriction on the key people starting or joining a competing business for a period after they leave, usually paired with a non-solicit covering the firm's investors and employees.
How common. Standard. In the 2014 to 2018 data, non-competes ran 12 to 24 months, with 24 months the most frequent and 12 and 18 months the next most common. Non-solicits ran at least as long and often longer, with 24 months becoming the most standard duration.
What it means for you. Optionality on your own future. Managers often negotiate carve-outs, such as being allowed to work below portfolio-manager level elsewhere, or a shorter period if the business fails to become self-sustaining after the lockup.
Frequently Asked Questions
What is a founders share class in a hedge fund?
A share class with lower management or incentive fees, or both, offered to investors who commit early. Among new U.S. managers advised by Seward & Kissel, about 69 percent of equity funds and 33 percent of non-equity funds offered one in 2025, per the firm's New Manager Hedge Fund Study.
What are capacity rights in a seed deal?
The seeder's right to invest more with the manager later, in the seeded fund or other products, reserved as a fixed amount or a percentage of AUM and usually on the same preferential terms as the seed.
What is a sunset clause in a hedge fund seed deal?
A provision that reduces or ends the seeder's revenue share over time, at set asset levels, or after a set period. Seward & Kissel found some form of step-down, sunset or termination in 20 to 30 percent of annual observations between 2014 and 2018.
What are tail rights in a seeding agreement?
The seeder's right to its seed economics in any business a key person starts or manages within a defined period after leaving. A five-year period was the most common in Seward & Kissel's 2014 to 2018 data.
How long is a key-person non-compete in a seed deal?
Typically 12 to 24 months, with 24 months the most frequent in Seward & Kissel's 2014 to 2018 data. Non-solicits usually run at least as long, and often longer.
How we know this
Sources
- Seward & Kissel LLP, Seed Transactions Deal Points: 2014–2018 Study: archived PDF. Source for: capacity rights, participation in new products (at least 90%), sunsets and step-downs (20–30%), tail rights, non-compete and non-solicit durations.
- Seward & Kissel LLP, Seed Transaction Deal Points: 2020 Study (7th annual; the PDF is no longer hosted by the firm). Source for: tail triggered within a five-year post-departure period as the most common form.
- Seward & Kissel LLP, 2025 New Manager Hedge Fund Study (July 2026): release. Source for: founders classes in about 69% of equity funds and 33% of non-equity funds.
- Seward & Kissel LLP, 2024 New Manager Hedge Fund Study: release. Source for: founders classes rising to about 70% of equity funds from 49%.
- Seward & Kissel LLP, 2025 Seed Transaction Deal Points Study (12th annual, July 2026): release. Source for: seed capital now split nearly evenly between hedge funds and private equity or private credit.
- Tannenbaum Helpern Syracuse & Hirschtritt LLP, Investment Fund Seeding: Structures and Negotiable Terms (June 2020): article. Source for: how sunsets are typically structured.
A note on scope: this piece describes broad market practice as reported in third-party research. It is general information, not investment, legal or tax advice, and it does not describe terms offered by any specific investor, including Whitespace.
More from Whitespace Research
- What a Hedge Fund Seed Deal Actually Costs
- Seeding, GP Stakes, and First-Loss Capital: What Is the Difference?
- Do Emerging Managers Actually Outperform?
- How Seed Investors Actually Evaluate Emerging Managers
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