What's in a VC Term Sheet?

You've just received your first venture capital term sheet. Congratulations—you've earned it. Now what does it all mean? "Pre-money valuation," "liquidation preference," "pro-rata participation rights"? A seasoned venture capitalist (in this post, a VC or investor) has seen and invoked these concepts hundreds, if not thousands, of times. You? Maybe not so much. But this post can help: it aims to prepare you for a few of the most important terms you'll encounter in almost every term sheet. 

Purpose

The first step in understanding any term sheet is understanding its purpose. And, although term sheets can take many forms—from summarizing the principal terms of a proposed merger to setting out a joint venture's product development timeline—good term sheets are meant to accomplish a few simple objectives, namely to: