Term Sheet Decoder

A short-term loan that converts to equity at the next priced round — comes with an interest rate, a maturity date, a valuation cap, and a discount. The original startup seed instrument, mostly replaced by SAFEs post-2013.

The reduction in your ownership percentage when a company issues new shares — at each funding round, every existing shareholder's slice of the pie gets smaller, even as the pie itself grows.

The clause in a term sheet guaranteeing investors get their money back first — sometimes a multiple of it — before founders or employees see a dollar from an acquisition.

The earliest institutional round — typically $250K–$1M raised before there's real product-market fit, usually from angels, micro-VCs, or accelerators in exchange for 5-10% on a SAFE.

The contractual right (but not the obligation) for an investor to participate in future funding rounds at the new round's price — at enough size to maintain their current ownership percentage.

A short, founder-friendly contract where an investor wires money now in exchange for shares at the next priced round — no interest, no maturity date, no debt to pay back.

The first institutional round of startup funding — typically $1-5M raised from VCs and angels in exchange for 10-20% equity, used to chase product-market fit.

The first priced equity round — typically $5-20M raised after a startup has proven product-market fit, structured with full term sheets, board seats, and preferred stock instead of the casual paper of seed.

The short, mostly-non-binding document outlining the key terms of an investment — valuation, amount, board composition, liquidation preference, vesting — negotiated and signed BEFORE the lawyers start drafting the 100-page deal docs.

The maximum company valuation at which a SAFE or convertible note converts to equity — caps the early investor's effective price per share if the next round closes at a much higher valuation.