Know Your Term Sheet

Know Your Term Sheet AI Prompt is a founder-focused AI prompt designed to help you understand, analyze, and negotiate venture term sheets. The prompt guides you to extract key terms, identify potential red flags, and compare interests between founders and investors. It emphasizes practical, actionable questions you can paste into your favorite LLM, attach your term sheet, and receive structured explanations without sharing personal information. The page also references reading materials for deeper learning and clarifies that it should not be considered legal advice.

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How to Use Know Your Term Sheet AI Prompt

1. Copy the prompt and paste it into your preferred LLM with the biggest context size.
2. Attach your term sheet to the prompt for analysis.
3. Run the prompt and review the structured explanations, questions, and examples provided.
4. Use the results to prepare questions for your lawyer and to evaluate negotiation leverage.

Disclaimer: This tool is for educational and preparatory purposes and should not be taken as legal advice.

What You Get

• A structured, comprehensive questionnaire covering common venture term sheet topics
• Clear explanations of each clause and its potential impact on founders and the company
• Specific prompts to ask for clarifications, examples, and potential risk scenarios
• Practical guidance on identifying favorable vs. unfavorable terms

Topics Covered (sample questions to expect)

• Liquidation preference: non-participating vs. participating; multiple?
• Pay-to-play provisions
• Founder vesting: vesting schedule, cliff, and terms
• Anti-dilution protections: full ratchet, weighted average, or other
• Board composition: observer rights, number of seats
• Protective provisions: detailed list (e.g., changes to stock, authorization of new stock, seniority, buybacks, sale of the company, charter/bylaws changes, board size, dividends, debt, bankruptcy, IP licensing, token offerings, etc.)
• Drag-along rights
• Conversion mechanics: preferred to common, automatic conversion
• Dividends and redemption rights (and warnings if applicable)
• Conditions precedent to financing
• Information rights and competitive exposure
• Registration rights
• Right of first refusal (ROFR)
• Voting rights and structures
• Restrictions on sales
• Proprietary information and inventions assignment
• Co-sale agreements
• Founder activities clause
• IPO-related purchase rights
• No-shop agreements
• Indemnification
• Assignment clauses

Why This Helps

• Turns a complex term sheet into a structured checklist you can discuss with counsel
• Highlights clauses that commonly dilute founder control or equity
• Provides a pragmatic framework to prepare negotiation strategies

Source References

• Reading materials: Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson; Venture Capital Deal Terms by Harm De Vries, Menno Van Loon, Sjoerd Mol
• Copyright © Pranit Bauva. All rights reserved.

Legal Note

This content should not be considered legal advice. Always consult a licensed attorney for legal guidance.

Core Features

• Structured founder-oriented assessment of term sheets
• Exhaustive coverage of common and critical term sheet provisions
• Prompt-ready formatting suitable for any large language model
• Emphasis on practical questions, risk identification, and negotiation leverage
• No requirement to share personal information to analyze term sheets