term-sheet-review

user-invocable	true
name	term-sheet-review
description	Understand investment term sheets and what terms matter
tokens	~450
cloud-ok	true

Term Sheet Review

#claudeai

When to Use

You received a term sheet from an investor and need to understand what you're agreeing to.

What I Need

• The term sheet (paste or upload)
• Stage (pre-seed, seed, Series A, etc.)
• Any specific concerns?

⚠️ Disclaimer

This helps you understand term sheets. It is NOT legal advice. Always have a startup lawyer review before signing.

Term Sheet Anatomy

Economic Terms (The Money)

Valuation

• Pre-money: What the company is worth before investment
• Post-money: Pre-money + investment amount
• Your dilution = Investment / Post-money

Example:

• $2M investment at $8M pre-money
• Post-money = $10M
• Dilution = 20%

Option Pool

• Reserve for future employee equity
• Watch: Is it taken from pre-money? (increases dilution)
• Typical: 10-20% for seed/A

Liquidation Preference

• Who gets paid first if company sells
• 1x non-participating: Standard, fair
• 1x participating: Investors get preference AND pro-rata (double dip)
• >1x: Red flag - investors get 2x+ before you see anything

Control Terms (The Power)

Board Composition

• Who controls the board?
• Typical seed: 2 founders, 1 investor, or 2-1-0
• Watch: Losing board control too early

Protective Provisions

• Things investors can veto
• Standard: Sale of company, new equity, debt, changing charter
• Watch: Overly broad veto rights

Pro-Rata Rights

• Right to maintain ownership % in future rounds
• Standard and usually fine
• Benefits you if company does well

Founder Terms

Vesting

• Standard: 4 years, 1 year cliff
• Watch: Acceleration on change of control (single vs double trigger)

Founder Restrictions

• Non-compete, non-solicit
• Watch: Overly broad restrictions

Key Red Flags

Term	Red Flag	Standard
Liquidation preference	>1x or participating	1x non-participating
Anti-dilution	Full ratchet	Broad-based weighted average
Board seats	Majority to investors	Founder majority or balanced
Option pool	>20% from pre-money	10-15%
Founder vesting	Restart from zero	Credit for time served
Redemption rights	Any	None
Dividends	Cumulative	Non-cumulative or none

Output Format

## Term Sheet Review: [Investor Name]

**Deal Summary:**
- Investment: $X
- Pre-money valuation: $Y
- Post-money: $Z
- Your dilution: X%

**Economic Terms:**
| Term | Offered | Standard | Status |
|------|---------|----------|--------|
| Liquidation pref | X | 1x non-part | 🟢/🟡/🔴 |
| Option pool | X% | 10-15% | 🟢/🟡/🔴 |
| Anti-dilution | Type | Broad-based WA | 🟢/🟡/🔴 |

**Control Terms:**
| Term | Offered | Status |
|------|---------|--------|
| Board seats | X-Y-Z | 🟢/🟡/🔴 |
| Protective provisions | [List] | 🟢/🟡/🔴 |

**Concerns:**
🔴 [Serious issue]
🟡 [Should negotiate]

**Negotiation Priority:**
1. [Most important to change]
2. [Second priority]
3. [Nice to have]

**Questions for Investor:**
1. [Clarification]
2. [Clarification]

**Recommendation:**
[Negotiate these points / Accept as-is / Major concerns]

Negotiation Leverage

High leverage:

• Multiple term sheets
• Strong traction
• Hot market

Low leverage:

• Running out of money
• Only one offer
• Down market

Focus negotiations on what matters most, don't fight everything.