AI Term Sheet Generator

A term sheet is a non-binding document that outlines the key terms and conditions of an investment. It serves as the basis for negotiation between founders and investors before the final legal agreements are drafted. Term sheets typically cover valuation, investment amount, equity percentage, board seats, voting rights, liquidation preferences, and protective provisions. While non-binding, they establish expectations for the final deal.

Focus negotiation energy on: valuation (determines your dilution), liquidation preference (affects payouts in exit scenarios), board composition (influences company governance), anti-dilution protection (how shares adjust in a down round), option pool size and timing (affects effective valuation), and protective provisions (what requires investor consent). Less critical terms can often be accepted at market standard.

Liquidation preference determines how proceeds are distributed when the company is sold or dissolved. A 1x non-participating preference means investors get their money back first (or their pro-rata share if worth more). Participating preferred means they get their money back AND share in remaining proceeds — this is more investor-favorable. Aim for 1x non-participating, which is the most founder-friendly standard term.

Anti-dilution protection adjusts investor share prices if the company later raises at a lower valuation (a 'down round'). Broad-based weighted average is the most common and founder-friendly version — it partially adjusts the price based on how much is raised at the lower price. Full ratchet anti-dilution (investor gets full price adjustment) is much more aggressive and should be avoided if possible.

SAFEs (Simple Agreement for Future Equity) are faster, cheaper, and simpler — ideal for pre-seed and small seed rounds. They defer valuation negotiation to the next priced round. Priced rounds are better for larger raises ($1M+) where investors want immediate equity, board seats, and formal governance. Most startups use SAFEs for the first raise and transition to priced rounds at the seed or Series A stage.