The Interactive Term Sheet Decoder

The interactive term sheet decoder

A term sheet is a short document in which two or three sentences decide most of the outcome. Select the clauses you have been offered and this will tell you which are standard, which are negotiable, and which quietly reprice the whole deal.

How to read the flags. Most clauses on a real term sheet are simply market standard, and they are marked as such rather than coloured red to make the page feel urgent. Only the ones that materially move value away from common stock are flagged for pushback. Nothing here is legal advice on your deal.

What you selected

2 clauses are worth pushing back on.

Push back1x participating preferred
The investor takes their capital back first, then shares the remaining proceeds alongside common.
Paid twice out of the same exit. On a mid-size outcome this moves millions from common to preferred, and it is the single most expensive clause most founders sign without modelling.
Quantify it: startup equity offer calculator
Push backFull ratchet anti-dilution
On any cheaper share issued later, the investor's entire position reprices to that lower price.
Size-blind. A single cheap share can reprice the whole holding, and on a modest down round it can cost founders several times what weighted average would.
Quantify it: anti-dilution simulator

Flags describe how a clause is generally regarded in the venture market, not advice on your deal. Your documents control, and a lawyer should read them before you sign.

Which term sheet clauses should founders push back on?

Read the clauses, not the valuation. A high headline number paired with participating preferred, full ratchet anti-dilution and a large pre-money option pool can leave founders worse off than a lower valuation on clean, standard terms, because those clauses decide the payout.

Participating preferred pays the investor twice: capital back, then a share of the rest.

Full ratchet reprices an investor's whole position on any cheaper share issued later.

A pre-money option pool is carved out of your shares, not out of the incoming money.

Valuation is the number everyone negotiates and rarely the one that matters

The same valuation, two very different deals

Take a $10M pre-money offer on clean terms — 1x non-participating preference, broad-based weighted average anti-dilution, a pool sized to an actual hiring plan. Now take a $14M pre-money offer with participating preferred, full ratchet, and a 15% pre-money pool. The second headline is 40% higher and the founders can easily end up with less money and less control. Every one of those three clauses moves value, and none of them appears in the number anyone repeats.

The clauses that reprice a deal are quantifiable, which is the only reason to argue about them from a position of strength. Run the down-round case through the anti-dilution simulator before you concede a ratchet, and put the pool through the founder dilution calculator before you accept its size.

What to trade, and what to hold

Not everything is worth a fight, and treating a standard term as an insult is how a founder loses credibility on the terms that do matter. Protective provisions, founder re-vesting and pro-rata rights are expected; the negotiation is their scope, not their existence. Participating preferred, a preference above 1x, full ratchet and a board majority are different in kind — they change who captures the outcome and who controls the company.

Read the model documents once

Almost every term sheet you will see is a variation on a published template, and reading the base document once makes every subsequent negotiation faster. The NVCA's model legal documents are the industry-standard forms these deals are drafted from, including the term sheet and the charter provisions that carry the clauses above.

Where Lovie fits is after the negotiation: the terms you agree end up attached to the shares they govern, so an exit model or a down-round scenario is a question you ask rather than a spreadsheet somebody rebuilds from the documents each time.