Term Sheet Analysis Calculator
Term sheet scoring.
Score term sheet founder-friendliness across liquidation preference, anti-dilution, board composition, and governance terms.
What this tool does
This tool scores term sheet founder-friendliness by calculating a 100-point baseline and applying deductions across key dimensions. The final score reflects how investor protections and control mechanisms may affect founder equity outcomes. The calculation deducts points for liquidation preference multiples above 1x, full ratchet anti-dilution provisions, and investor board seat allocations exceeding two seats. Investment amount, pre-money valuation, and anti-dilution structure drive the score most significantly. A typical scenario involves comparing multiple term sheets to understand relative founder impact, though the score illustrates structural patterns rather than predicting financial returns. The calculator does not model future dilution from subsequent funding rounds, tax implications, or market conditions.
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Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Term sheet analysis calculator scores how founder-friendly an investment offer is. 2M investment at 8M pre-money valuation, 1x liquidation pref, weighted average anti-dilution, 1 board seat = founder-friendly. 2M at same valuation but 2x participating preference, full ratchet anti-dilution, 3 board seats = punitive.
Example: 2M investment at 8M pre-money. Investor ownership: 2M / 10M = 20%. Founder-friendly score: 100 baseline. 1x non-participating preference: no penalty. Weighted average anti-dilution: no penalty. 1 board seat: no penalty. Final score: 100/100 - very founder-friendly. Same deal at 2x participating + full ratchet + 3 seats: 30/100 - very investor-favorable.
Key term sheet items to negotiate: (1) Valuation (pre-money). (2) Liquidation preference (1x non-participating standard). (3) Anti-dilution (weighted average broad-based, NOT full ratchet). (4) Board composition (founder control crucial). (5) Pro-rata rights. (6) Drag-along provisions. (7) Information rights. (8) Vesting acceleration. Engage experienced startup lawyer (Cooley, WSGR, Orrick in; Bird & Bird, Taylor Wessing in). Term sheet shapes company governance for life.
Run it with sensible defaults
Using investment amount of 2,000,000, pre-money valuation of 8,000,000, liquidation preference multiple of 1, anti-dilution of 1, the calculation works out to 100/100. The defaults are meant as a starting point, not a recommendation.
The levers in this calculation
The inputs — Investment Amount, Pre-Money Valuation, Liquidation Preference Multiple, Anti-Dilution (1=Weighted, 2=Ratchet), and Investor Board Seats — do not pull with equal force. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.
How the math works
100-point baseline. Deductions: high liq pref (-30 per multiple above 1x), full ratchet (-25), >2 board seats (-15).
Why investors run this
Most people's intuition for compounding is wrong — not because the math is hard, but because linear thinking doesn't account for curves. Running numbers through a calculator like this one is the cheapest way to recalibrate that intuition before making an irreversible decision about contribution rate, asset mix, or retirement age.
What this doesn't capture
Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.
££2,000,000 at ££8,000,000 pre-money, 1x pref, type 1 = 100/100.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
The calculator computes a term sheet score using a 100-point baseline, then applies deductions for investor-favorable provisions. A liquidation preference multiple above 1x incurs a 30-point penalty per multiple unit, reflecting the cost of preferred return priority. Full ratchet anti-dilution protection triggers a 25-point deduction; weighted average anti-dilution incurs no penalty. Each board seat beyond two reduces the score by 15 points. The final score equals 100 minus the sum of all applicable penalties. The model assumes each provision operates independently and treats all penalties as additive. It does not account for interactions between terms, relative negotiating position, company stage, or industry norms. Results reflect numeric scoring only and should not be interpreted as valuation guidance or investment recommendation.
References
Frequently Asked Questions
Most important term sheet items?
Founder-friendly vs investor-friendly terms?
Negotiation tips?
Red flags in term sheets?
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