Term sheets are investment agreements between an investor and a startup. Term sheets can be very difficult to comprehend for startups, so we have prepared for you our favorite document that will get you prepared for anything you need to know about the world of startup investment: http://www.foundersfund.com/uploads/term_sheet_explained.pdf
There is also a thing called Option Pool Shuffle (MUST READ). The pool is part of your company that investors will reserve in advance to handle future occurences (like future funding equity, employees).
For example: If a VC decides to invest in 40% of your company at 1M valuation (They invest 400K), you think to yourself - okay great, we still own 60% of the company. Wrong! You read the term sheet carefully and you realize that there is another 20% option pool shuffle, which brings your ownership to 40%. The 20% is reserved in advance to handle future hirings of senior stuff - for example a VP who would probably take 1% of the company.
Solution: Develop your future hiring plans so that you can reduce the option pool.
I have read the document carefully, as I understand if I don't understand the terms, I might be getting the shorter end of the stick.
