A term sheet in plain English

A term sheet is a short, mostly non-binding document that summarizes the key terms an investor is proposing — valuation, how much they’re investing, and the handful of rights and protections that come with it. It’s not the final legal agreement; it’s the outline everyone agrees to before lawyers draft the real thing.

The clauses worth actually understanding before you sign anything: valuation (pre-money vs. post-money — know which one a number refers to), liquidation preference (what investors get paid first, and how much, before anyone else does), board composition (who gets a board seat and what that means for control), pro-rata rights (whether investors can maintain their ownership percentage in future rounds), and anti-dilution provisions (what happens to their stake if you raise a later round at a lower valuation).

The founder-relevant move: paste the actual term sheet into Claude and ask it to translate each clause into plain language, flag anything unusual compared to standard market terms, and tell you honestly which clauses are worth a lawyer’s specific attention before you sign. That last part matters — Claude can help you understand what you’re reading; it isn’t a substitute for a real lawyer reviewing the actual binding agreement that follows.

The single most common mistake: signing quickly because a term sheet “isn’t the real contract yet.” Terms agreed here are hard to renegotiate later — read it as if it were final, because in practice it mostly is.