Even if you plan to bootstrap your company, you should have a good understanding of financing term sheets. That’s what DuckDuckGo founder and Hacker Angel Gabriel Weinberg argues in a blog post today that gives some clear and detailed instructions on where to go to learn more about investor term sheets.
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As Weinberg points out, most companies will raise money at some point, and it’s better to enter financing situations with a grasp of how things work so that you’re less prone to make mistakes. And as such Weinberg lays out a fairly comprehensive lesson plan for gaining an understanding of the terminology in term sheets.
Introduction to Term Sheets:
1. Brad Feld’s Term Sheet series
2. Venture Hacks’ Term Sheet Hacks
Weinberg also points to links to sample documents (such as this Series Seed Term Sheet) so you can see what actual term sheets look like as you read these series. Having a concrete example will help you learn the definitions of key terms (“conversion,” “liquidation preference,” and so on).
Intermediate Study:
Once you understand the terms of the seed documents, Weinberg says to move on to the venture term sheets:
1. The Startup Company Lawyer’s definitions and explanations of how the terms differ in across these documents
2. The WSGR Term Sheet Generator
Advanced Materials:
1. The Startup Company Lawyer’s comparison of Y Combinator and traditional Series A documents
2. Chris Dixon’s advice “Don’t shop your term sheet”
Weinberg also points to the book Term Sheets & Valuations, but notes that, indeed, most of the necessary information can be found online.
Take a week to study the material, in half-hour increments, says Weinberg. And yes, this will be on the final exam.