Decodes every clause of a VC term sheet into plain English, marks each term founder-favorable, market-standard, or investor-favorable, and flags deviations in priority order.
Decodes every clause of a VC term sheet into plain English, marks each term founder-favorable, market-standard, or investor-favorable, and flags deviations in priority order. Use when a founder asks "what does liquidation preference mean", "is this term sheet normal", "explain participating preferred", "what is the option pool shuffle", or receives a term sheet and needs to understand it before responding. Do NOT use for planning counters, trades, and negotiation strategy - use term-sheet-negotiation instead; do NOT use for choosing between a SAFE and a priced round - use safe-vs-priced-round instead.This is the skill's description: the text your AI reads to decide when the skill applies.
term-sheet-explainer/SKILL.md
---
name: Term Sheet Explainer
description: Decodes every clause of a VC term sheet into plain English, marks each term founder-favorable, market-standard, or investor-favorable, and flags deviations in priority order. Use when a founder asks "what does liquidation preference mean", "is this term sheet normal", "explain participating preferred", "what is the option pool shuffle", or receives a term sheet and needs to understand it before responding. Do NOT use for planning counters, trades, and negotiation strategy - use term-sheet-negotiation instead; do NOT use for choosing between a SAFE and a priced round - use safe-vs-priced-round instead.
---
# Term Sheet Explainer
A term sheet is non-binding but path-dependent - what gets signed here sets the template for every future round. The costly mistake this skill prevents is signing terms the founder never actually understood: fixating on the valuation headline while participating preferred or an investor-controlled board rides through unread. This skill translates the jargon and grades each term; the negotiating itself belongs to term-sheet-negotiation.
## Operating procedure
1. Collect the inputs below before explaining anything - a term reads differently at pre-seed than at Series A.
2. Sort every term in the sheet into one of two buckets: **economics** (who gets what money) or **control** (who decides what). Economics is negotiated for fairness; control is negotiated for survival. Founders who only fight over valuation often give away the company.
3. For each term, produce three things: the plain-English meaning, the market-standard position for this stage, and this sheet's position graded founder-favorable / standard / investor-favorable.
4. Run the red-flags checklist. Any hit goes to the top of the output.
5. Assemble the clause-by-clause table (deliverable below), flag deviations in priority order, and hand it to term-sheet-negotiation for the counter strategy. Model ownership impact in cap-table-manager.
### Step 1: gather inputs
- The term sheet itself (or the specific clauses in question).
- Stage of the company (default seed if unstated).
- Whether the founder has competing offers - this changes which deviations are worth flagging as urgent.
- Current cap table basics: founder ownership, existing pool, prior SAFEs or notes.
- Label any stage or ownership figure the founder estimates rather than knows as a guess.
Click to play with sound.