Reading a Term Sheet Before You Sign One

A term sheet is short on purpose — a handful of pages standing in for a much longer legal agreement to come. That brevity is exactly why founders skim it: it reads like a summary, not a contract. But nearly every number that matters later — what you actually own, who controls the board, what happens if the next round goes badly — gets decided in these few pages, not the paperwork that follows.

Valuation gets all the attention, but it’s rarely the clause that costs a founder the most. Liquidation preferences decide who gets paid first, and how much, before anyone else sees a dollar. Board composition decides who you answer to starting the day you sign. Pro-rata rights, anti-dilution terms, and vesting schedules quietly compound over every future round — they’re the terms that feel abstract in the first meeting and very concrete two years later.

None of this is a reason to fear a term sheet. It’s a reason to read every clause and understand what it does before you’re excited enough to stop asking questions. Bring in a lawyer who works on deals like yours regularly, not just once a year. The investors on the other side of the table have done this dozens of times; the first time you do it shouldn’t be the only time you look closely.