This week I learned how to decipher a term sheet

To the neophyte, They are full of weird stuff


I have transitioned full-time into my HLK Ventures role. That means the last four years of brand strategy for Channel has come to an end and I have begun to immerse myself fully into the world of startup investing.

It's a daunting world for the uninitiated. There is so much to learn, especially the parlance employed by parties playing within this universe. While I've already reviewed a number of term sheets, I still don't know a whole hell of a lot about this facet of the game.

So this week, I learned about some of the finer details of term sheets. Here are three things I learned:

  1. Terms sheets aren't actually legally binding (except for confidentiality provisions). This surprised me. They aren't contracts but act as a sort of agreement bound by ethics and are subject to contract later.
  2. There are two types of distributions/dividends—preferential fixed, which are cumulative and accrue as debt, and non-cummulative, which do not accrue and are only paid when the company is legally permitted to do so.
  3. Anti-dillution ratchets protect investors in the event that the company raises a future round at a lower valuation and often gives the investor the right to receive extra shares to balance the dilution. (There are several kinds of ratchets, which impact investors in different ways.)

Thanks for reading. I hope you learned a few things too.


I learned this stuff from the Notion Capital blog entries about term sheets, Part 1 and Part 2.