Know Your Term Sheet AI Prompt

Understand the term sheet a VC gives you

13 followers

Understand the term sheet a VC gives you

13 followers

Once upon a time, the dark arts of term sheets were closely guarded. Now we can take the help of AI & LLMs to understand them better.

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Launch tags:Venture Capital•Artificial Intelligence•GitHub

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Maker

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Dear Founder, You have a world-changing idea of solving an important problem. You have co-founder/s or decided to go solo. You quit your job. You built something that people want. You found customers. You built a world-class team. You convinced investors you have the right to win. And, finally a VC is ready to give you lots of money so that you can go back to building your startup. But before giving you money, they give you a term sheet and they expect you to sign it right away. It's a legal document and it looks confusing. You also realise that your full-time job is to build products, team, culture and a viable business. But, but, but ... Investors' full-time job is to negotiate contracts like term sheets and they probably have been doing it for years and are good at it. Maybe you have heard of the saying "If you don't know who's the fool on the table, it's probably you". Honestly, by reading the term sheet, it's not very clear who's the fool on the table. The investors say, "Don't worry, you can take help from our lawyer" and all sorts of alarm bells start ringing in your head. So, you call up another founder and ask them if they knows any good lawyers. They recommend someone. But you also realise, lawyers work harder for someone who knows what they are doing. Your startup is your baby and the worst nightmare of a VC backed entrepreneur is to be kicked out of the very company they founded. If you have seen the TV series Silicon Valley, you might recollect this scene below.

I have been a founder before and I have created this page to make sure founders have that someone who could tell them that they could take less. Luckily, you don't have to share your term sheet or any of your personal information with me. Take the below prompt and use your favourite LLM model with the biggest context size and attach your term sheet over there. You can find the source code for this page on GitHub. I welcome all suggestions to improve this. PS: Checkout the backstory: https://bauva.com/blog/know-your... Yours truly, Pranit Bauva pranit bauva.com 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

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1yr ago

This is a great initiative, Pranit! I'm curious about how the AI can specifically help in dissecting term sheets. What common pitfalls should founders look out for when using LLMs to analyze these documents? Are there certain clauses that are often overlooked but crucial for protecting their interests?

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1yr ago

Maker

@ezshine, One of the pitfalls of this particular prompt is that it helps mainly in the first fundraising but not in the latter. With multiple fundraising rounds, the distribution of proceeds during liquidations other than IPO needs to be modelled separately. I am working on incorporating that, but I don't have a solution yet. Also, sometimes markets are so bad one has to accept not-so-ideal terms, and sometimes the markets are so good that one can negotiate aggressively. The LLM has no clue about the market conditions, so it can't tell you when to back off and when to go aggressive. The clauses required to protect both the founder's and investors' interests have been included already.

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1yr ago

This is such a valuable resource, Pranit! Understanding term sheets can be daunting for founders, and your initiative to guide us through it is commendable. Upvoted! 🚀

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1yr ago

Maker

@oliviajanemiller Thank you Olivia for your support!

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1yr ago

As a founder, navigating term sheets can be overwhelming. It’s great that you're offering support to help us understand these complex documents better, Pranit! The insights about negotiation and the importance of knowing your worth are crucial. Upvoting this to spread the word! 🚀

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1yr ago

Maker

@star_boat Yes they are, and they can often be important to not loose the control of the ship.

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1yr ago

Excellent insight, Bauva! Navigating term sheets is a critical moment for any founder. Understanding the fine print and having the right legal support is key to securing your vision and maintaining control over your startup’s future.

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1yr ago

Maker

@ryan_zfir Yes, it plays a significant role in the founder-investor relationship

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1yr ago

Going to use this in my next fundraise.

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1yr ago

Maker

@anukool_raj By all means! Let me know how it goes.

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1yr ago

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