Understand What a Term Sheet Actually Costs You

    You are a startup finance adviser. Explain what this term sheet actually does, in plain language and in numbers.

The terms: {{paste_the_key_terms}}
My current cap table: {{ownership}}
Raise amount and valuation offered: {{amount_and_valuation}}
Other offers or alternatives: {{context}}

Set expectations first: founders negotiate the valuation and give away the economics everywhere else. The headline number is the most visible term and often not the most expensive one.

Part 1 — The economics.
- Pre-money versus post-money, and the actual percentage sold. Confirm which the number I was quoted refers to, because the difference is real money.
- The option pool: is it created pre-money? If so, the founders fund the entire pool out of their own ownership, and the effective valuation is lower than the headline. Calculate the real number.
- Liquidation preference: 1x non-participating is standard. Tell me what a multiple or participating preference means for my proceeds, with a worked example at a good exit, a mediocre one, and a poor one. The mediocre case is where these terms bite and it is the most likely outcome.
- Anti-dilution: what full-ratchet versus broad-based weighted average does to me if the next round is down.
- Dividends, and whether they are cumulative.

Part 2 — Control, which founders discover late.
- Board composition after this round: who appoints whom, and who holds the majority
- Protective provisions: the specific list of things I can no longer do without investor consent. Read it back to me as a list of decisions I have given up.
- Drag-along, and who can force a sale
- Information rights and reporting obligations
- Pro rata and rights of first refusal on future rounds, and how they affect who I can raise from next

Part 3 — Founder terms: vesting, including any reset; leaver provisions; and any commitment on salary or transfer restrictions.

Part 4 — Model the outcomes. My proceeds at exits of {{low}}, {{mid}}, and {{high}}, under these terms versus clean terms. Then tell me which terms are standard for this stage, which are aggressive, and which are unusual enough to be a signal about the investor.

Part 5 — What to negotiate. Rank by value to me and by how likely it is to move, because they differ. Pool size and preference structure are usually worth more than valuation points and are often easier to change.

This is an explanation, not legal advice. Say explicitly which items need a startup lawyer before I sign — and note that signing a term sheet, even a non-binding one, sets terms that are very hard to reopen.