So long as the mechanics of term sheets remain opaque — and it's astounding that a document whose variables haven't changed in three decades remains so mystifying, even to VCs — the natural temptation for all parties is to use the term sheet as a crude mechanism for one party to chisel another on price. We'd rather have an honest discussion about price, and for that reason, we've put together this calculator and plain English guide to help entrepreneurs understand the basic mechanics of the term sheet. Our calculator doesn't handle every circumstance nor does our guide provide every detail of every financing term, but we hope they provide a reasonable way for entrepreneurs and VCs to start a straightforward conversation, without anyone having to worry about hidden implications or other gotchas.
This represents our first cut and isn't meant to be an exhaustive model; more features are coming but every term sheet is different and in the end, not every oddity will be modeled. Still, we'll give it our best shot. If you feel this is buggy, wrong, or just plain odd, email us.
Disclaimer: The primary purpose of this calculator is to illustrate the effect of variables like valuation, option pool size, convertible note conversion terms and the rights of your investors on your ownership of the company and your return in an exit. We think it is most helpful in illustrating the importance of these variables when you populate all of the fields, and then change individual fields and follow the ripples. This is not intended to be a tool to provide stockholders with to-the-penny information about their return in an acquisition. There are way too many variables (e.g. how options are treated, how an escrow or holdback is structured, whether there is an earnout, what transaction costs are included, how working capital or other purchase price adjustments are calculated, to name a few) that are unique to a given deal and that are needed to provide that level of precision. Trying to include all of those in this calculator would be way too messy, necessarily incomplete, and wouldn't really add anything to the central purpose. Use this at your own risk. It is not a substitute for doing your own math.