# The term sheet explained

> Economics and control: liquidation preference, anti-dilution, pro rata, board seats and protective provisions, each on its own page.

Source: https://lopifi.com/learn/term-sheet-explained
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How do I read a startup term sheet — what do the economics and control terms mean?** Economics and control: liquidation preference, anti-dilution, pro rata, board seats and protective provisions, each on its own page.

A [term sheet](https://lopifi.com/md/glossary/term-sheet) is a few pages that set a priced round's terms before the lawyers write the documents. Its lines fall into two groups: economics (who gets how much money) and control (who decides). Each is a page under this lesson, worked on Northwind's Seed.

> **The valuation is one line of the term sheet. The preference, the pool and the anti-dilution clause can move more money than it does.**

| Term | Economics or control | Where it ends up |
| --- | --- | --- |
| Price, pre-money, pool | Economics | Stock purchase agreement; charter |
| Liquidation preference | Economics | Certificate of incorporation |
| Anti-dilution | Economics | Certificate of incorporation |
| Pro rata (right of first offer) | Economics | Investors' rights agreement |
| Board seats | Control | Certificate of incorporation; voting agreement |
| Protective provisions | Control | Certificate of incorporation |
| Right of first refusal and co-sale | Control | ROFR and co-sale agreement |

The lines of a venture term sheet, and the NVCA document each lands in.

— [NVCA Model Legal Documents](https://nvca.org/model-legal-documents/), The model certificate of incorporation, stock purchase, investors' rights, voting and ROFR/co-sale agreements

*[Figure: cap table]*

The Series Seed rides in: 2,439,624 new shares and a pool topped up by 284,812. Every other wedge narrows by the same factor.

In this lesson: liquidation preference, anti-dilution, pro rata rights, board seats and protective provisions.

## Pages in this lesson

- [Liquidation preference](https://lopifi.com/md/learn/term-sheet-explained/liquidation-preference) — 6 min. How does a liquidation preference work — non-participating vs participating?
- [Anti-dilution: weighted average and full ratchet](https://lopifi.com/md/learn/term-sheet-explained/anti-dilution) — 6 min. What is anti-dilution protection — broad-based weighted average vs full ratchet?
- [Pro rata rights](https://lopifi.com/md/learn/term-sheet-explained/pro-rata-rights) — 3 min. What are pro rata rights for investors?
- [Board seats](https://lopifi.com/md/learn/term-sheet-explained/board-seats) — 3 min. How do board seats work after a priced round?
- [Protective provisions](https://lopifi.com/md/learn/term-sheet-explained/protective-provisions) — 3 min. What are protective provisions in a term sheet?

## Where this lesson's rules come from

- [NVCA Model Legal Documents](https://nvca.org/model-legal-documents/) — The model certificate of incorporation, stock purchase, investors' rights, voting and ROFR/co-sale agreements (reference)
- [NVCA Model Certificate of Incorporation (Oct. 2025), §2.1](https://nvca.org/model-legal-documents/) — The liquidation preference: the greater of the preference or the as-converted amount (reference)
- [NVCA Model Investors' Rights Agreement (Oct. 2025), §4.1 (Right of First Offer)](https://nvca.org/model-legal-documents/) — Pro rata rights: a Major Investor's right to buy into the next round (reference)

## Read further

- https://lopifi.com/md/accounting/liquidation-preference
- https://lopifi.com/md/accounting/priced-round

- **Track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **Lesson:** Lesson 5 of 10 — 7 min
- **Terms taught:** [Term sheet](https://lopifi.com/md/glossary/term-sheet), [Liquidation preference](https://lopifi.com/md/glossary/liquidation-preference), [Anti-dilution protection](https://lopifi.com/md/glossary/anti-dilution-protection), [Pro rata right](https://lopifi.com/md/glossary/pro-rata-right), [Protective provisions](https://lopifi.com/md/glossary/protective-provisions)
- **Previous:** [SAFE versus note at conversion, Cap table · Lesson 4](https://lopifi.com/md/learn/safe-conversion-and-dilution-math/safe-vs-convertible-note-conversion)
- **Next:** [Liquidation preference](https://lopifi.com/md/learn/term-sheet-explained/liquidation-preference)
- **The course:** https://lopifi.com/md/learn