Term Sheet Decoder

A clause that gives earlier investors more shares (or a better conversion price) when a later round prices lower, so their stake doesn't get punished by the cheaper round.

A small, fast financing (usually SAFEs or convertible notes from existing investors) raised between two priced rounds to extend runway until the company is ready to price a proper next round.

The ledger that tracks who owns what in your company (every founder, employee, investor, SAFE holder, and option grant), usually expressed as percentages and share counts on a fully-diluted basis.

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

What happens to your ownership percentage when the company issues new shares: your slice of the pie shrinks, even as the pie itself gets bigger.

A percentage off the next round's per-share price that a SAFE or convertible note holder receives when their investment converts to equity, typically 10% to 25%.

A new round priced below the last one, which marks the company down and usually triggers anti-dilution adjustments for earlier preferred holders.

The deep background check an investor or acquirer runs before a deal closes, going through your finances, contracts, cap table, code, and customer numbers to confirm the company is really what the pitch said it was.

The investor who anchors a round by setting the valuation, writing the biggest check, and usually taking the board seat, with everyone else filling in around their terms.

The clause that guarantees investors get their money back (sometimes a multiple of it) before founders or employees see a dollar from an acquisition.

A clause (Most Favored Nation) that lets an early investor automatically inherit any better economic terms, like a lower cap or bigger discount, that a later investor negotiates in the same round.

A block of shares (usually 10% to 20% of the company) set aside for future employee grants, almost always carved out of the pre-money so existing shareholders absorb the dilution, not the incoming investor.

Your company's valuation immediately after the new investor money lands, equal to pre-money plus the amount raised in the round.

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

Your company's valuation immediately before new investor money lands in the round.

The contractual right (not the obligation) for an investor to buy enough of a future round to keep their current ownership percentage intact.

A short, founder-friendly contract (Simple Agreement for Future Equity) where an investor wires money now in exchange for shares at the next priced round, with no interest, no maturity date, and no debt to pay back.

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

The first priced equity round, usually $5M to $20M raised after product-market fit, with full term sheets, board seats, and preferred stock instead of the lightweight paper of seed.

The short, mostly non-binding document laying out the headline terms of an investment (valuation, check size, board, preferences, vesting), signed before the lawyers start drafting the 100-page closing docs.

The ceiling valuation at which a SAFE or convertible note converts to equity, protecting the early investor's ownership if the next round prices much higher.